Russia ponders raising retirement age in budget crunch

Russia ponders raising retirement age in budget crunch
Taking care of pensioners who are his bedrock of support has been a key feature of President Vladimir Putin's rule, but the budget has come under strain as people have started to live longer.

MOSCOW - Taking care of pensioners who are his bedrock of support has been a key feature of President Vladimir Putin's rule, but as crisis bites, the Russian government is mooting an idea that has been taboo for 80 years: raising the retirement age.

Since 1932, Russian men have been eligible to retire at the age of 60 and women at the age of 55. In numerous professions, especially hazardous ones like mining, people may retire even earlier.

But the budget has come under strain as people have started to live longer, as Russian women now have a life expectancy of 76 and men 65.

Now, faced with a shrinking economy thanks to Western sanctions over Ukraine, an oil price that is half of what it was a year ago and a weak ruble, even Putin is cautiously bringing up the subject, which threatens to unleash protests and hurt his high ratings.

"The retirement age is one of the key issues," the president said in his annual phone-in session earlier this month. In 2016, Russia will have to spend three per cent of its gross domestic product (GDP) on pensions -- over $50 billion -- he said.

"Here is the question: where, in fact, will we get this money?" Putin pondered.

International institutions such as the World Bank have long pressed Russia to reform its pension system, but the Kremlin resisted, despite constant warnings by fiscal hawks that it poses an unbearable burden on the budget.

The recession adds to the problem of an ageing population combined with fewer Russians entering the workforce due to a slump in births in the 1990s, and has prompted the government to sound the alarm.

"The faster we resolve this issue, the better for the economy and for the budget," Finance Minister Anton Siluanov said recently, proposing to hike the retirement age to 65 for both men and women.

Economy Minister Alexei Ulyukayev last week backed raising the retirement age gradually, by six months per year.

"From the point of view of the economy, they should have raised it a long time ago," said Igor Nikolayev, director of the FBK Grant Thornton Institute of Strategic Analysis.

"The reserve fund is being quickly depleted," he said, referring to a rainy-day fund the Russian government has filled with $75.7 billion earned from oil and gas sales in recent years.

"Next year they may exhaust it completely."

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