By Vladimir Osakovsky, Head of Macroeconomic Analysis and Research at UniCredit Securities
Topic: The Russian Ministry of Health and Social Development estimates that the state pension fund deficit would rise even more with a higher retirement age, Vedomosti reported.
Our view: According to the report, with the retirement age rising to 65 (vs. the current 60 years for men and 55 for women) the pension system deficit would ease marginally only until 2015, and afterwards would start to rise sharply.
Thus, the ministry estimates that with a higher retirement age, by 2030 the pension system deficit would rise by 85% vs. the current retirement age and by some 8.5X by 2075. First of all, we note that the news highlights the fact that the government has finally started to discuss pension age reform, as was hinted by Deputy Prime Minister and Finance Minster Alexei Kudrin a few weeks ago.
The debate on retirement age reform was effectively initiated by the recent presidential budget address, as we noted in our report, Russian Economics: Efficiency and modernization, published on 30 June 2010. Secondly, we note that such massive deficits in the pension system with a higher retirement age are mostly driven by a much higher outlook for pension increases with a higher retirement age.
Thus, with the retirement age at 65, the ministry estimates that the average pension should be nearly twice as high than under the current system. We note that the proposed retirement age reform faces opposition from all possible directions.
However, we think that even despite this, a rise in retirement age is an inevitable move for Russia, as by 2030 the number of retirees in the country is set to reach the number of working people. Therefore, we expect retirement age reform to proceed, although most likely only after the elections in 2012.
Conclusion: We expect the news to be neutral for the market, as it concerns the distant future
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