About Demography, Pension Reform, & the Demagoguery of Guardians “For the Good of the People”

The Russian state is wrong by definition. The opposition is always unhappy with its actions. Any of them. First and foremost – long-term structural ones. Especially when it comes to social guarantees. For example, such as pensions.

Sergey Mironov, the head of the “Fair Russia” party faction, referring to statistics on life expectancy in Russia, said that the new pension scheme had failed fatally and that there was an urgent need to return to its pre-reform form.

A number of parliamentarians believe that about 50% of men and 20% of women will not live to 65. By the end of the year, more than 13% of the Russian population, or 1 in 7 Russians, will be beyond the physiological minimum. And young people will be robbed of about a million rubles before they retire.

In short, everything is apparently bad. The reform initiated by the Ministry of Finance and the Pension Fund is erroneous, and the Accounts Chamber allegedly managed to find the money, the deficit of which they used to justify the reform. However, later it turned out that the Accounts Chamber did not quite find the money, and in general, had something completely different in mind, but such trifles – loud critical statements – always remain behind the scenes.

In this connection, I wanted to find out what happened to life expectancy in Russia to be able to talk about such radical conclusions?

According to the Federal State Statistic Service, 680,000 people were born and 946,000 died in Russia in the first half of 2020. Compared to last year, the birth rate decreased by 5.4%, and the death rate increased by 3.1%. The difference was 265,000 people, i.e., the increase in the country’s population (2014 – 143.66 million, 2019 – 146.7 million) was due to migration factors.

And it’s true. But, as usual, not entirely. The natural growth of the Russian population due to its own birth rate ended in 1990 — the last known mark with a positive balance of 2.2 people per 1,000 population. Times of high birth rate (the balance of 1950 – plus 16.8 people per 1,000; 1960 – 15.8; then the collapse, 1970 – 5.9 people; and even in the fertile 1980, the birth rate exceeded the death rate by only 4.9 people per 1,000).

The collapse of the USSR hit demographics very hard. In 2000, the death rate exceeded the birth rate by 6.6 people. This position is maintained up to and including 2003, and starting from 2004 (-5.5) a tendency towards leveling off the situation was gradually indicated. Pretty fast, I must say. In 2006 — minus 4.8; in 2009 – minus 2.5. Until zero in 2012.

Some may assume that everything is always true. But personally, it seems to me that there is clearly a positive feedback with the general standard of living in the country.

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For example, in 1995, on average, one citizen of the Russian Federation accounted for 18 sq. meters of total housing area; in 2005 – 20.8 square meters. m; in 2009 – 22.2 sq. m; in 2014 – 23.7 sq. m; in 2018 – 25.8 sq. m.

Or remember the social support received by 3 million families. The total amount of funds allocated for these purposes from 2010 to 2019 increased by 1.5 times. Or take a private car park. In 1990, there were 58.5 of them per 1,000 people, in 2005 this figure reached 169, and in 2010 – 228.3. In order to reach 315.5 pcs per 1,000 people in 2019.

It is easy to see that the figures somehow do not quite correspond to the statements made by some politicians about the increasing impoverishment of citizens. Otherwise, how can we explain that in 2019, 147 million people in Russia purchased 32.9 million new smartphones for a record amount of $7.9 billion? This is about 14,500 rubles per device.

In short, from this side, “incorrectness” is not observed. But maybe the problem really crept up through the increase in mortality? Deputies say that people simply do not live up to retirement age. Surely they must base their words on something real?

As follows from the speech made by the head of the Ministry of Health Veronika Skvortsova at the Eastern Economic Forum on September 4th 2019, the average life expectancy of men in Russia was 68.5, and women – 78.5.

It’s not even that women clearly live longer than men. In the 70s in the USSR, these figures were 63.7 and 74.3, and in the period from 1995 to 2003, the indicator for men fell to 58 in general. But thanks to the state measures taken (in healthcare, improving working conditions, and other areas), stable growth started since 2013, which has not been interrupted to this day.

And so far, even taking into account the consequences of the coronavirus epidemic, there is no mass pestilence in Russia. Although it is certainly a pity for those who died from the new disease, it should be recognised that these 18,365 prematurely ended lives cannot have any significant impact on the average life expectancy in the country.

But maybe then the number of those who “will not live up to retirement age” should be considered the determining factor? And that’s where the fun begins. It is hidden in the concept of gender and age structure.

The average life expectancy figures don’t really say much. Take, for example, Russia in 1987. The average life expectancy for men back then exceeded 63. At the same time, there were 1.5 million men aged 64 to 69 and 1.8 million men aged 70+. People aged 65 in 1987 are those who were born in 1922, lived through the civil war, industrialization, the spanish flu, the famine, the Great Patriotic War, and then the very difficult years of the country’s recovery.

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This means that we should count not so much by the average lifespan, but by the size of the proportion of those born in a particular period and then lived up to retirement age.

It is known that in 1959 in Russia (back then the Russian Soviet Federative Socialist Republic) 2.79 million boys and girls were born (approximately equally in quantitative terms). Back then women retired at 55 and men at 60. We look at the 2014 age and gender pyramid: 1.12 million women, or 80.5% of those born, lived up to retirement age. Men have a lower figure. By 2019 (1959 + 60 years), 835,000 people, or 60% of men born in 1959, reached retirement age.

From the point of view of pensions, we need to look not at the average age, but at this percentage. And it turns out that it is not shrinking, as the guardians of the people’s welfare complain, it is steadily growing.

There is a good graph of the dynamics, as we can now say, of the survival function, based on the example of statistics from Sweden. In 1860, 25% of those born died before the age of 10, including 2/3 of them did not even live up to 5. The death of the next 20% of the original number occurred at the age of 42, distributed fairly evenly over the years. But then, the next 20% “lived” in the age range from 45 to 65-67. A fifth of those born had a chance to live up to 78, and a tenth to pass even 90.

In other words, in 1860 only half of those born lived to 60, and 20 years later, in 1920, the number of such people exceeded 63%. In 1946, it was 85%, and in 2000 — 93%.

I have never met such a clean ready-made graph of the survival function according to Russian data. But simplified calculations, like the example above with those born in 1959, showed that the essence of the process is about the same. Even taking into account the consequences of the Great Patriotic War.

In 2021, taking into account the threshold of 60 years, men born in 1961 will retire. There are 955,000 of them today, or 71% of those born. When the pension system in the USSR in 1957 became truly universal (although formally the date of its introduction is considered to be 1937), the proportion of citizens over the age of 50 did not exceed 20%.

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Yes, one can say that the war is to blame, and it will be true. But now we are talking about something else. The average life expectancy in the country at that time was significantly lower than the retirement threshold. In 1959, only 17.8% of the population of Russia (back then the Russian Soviet Federative Socialist Republic) received a pension for 45% of the able-bodied. The remaining 37.2% were children. In 2019, the proportion of pensioners, even under the new rules shifted to the right by five years, was 29.1% of the population, and the number of able-bodied people almost did not grow — 48.2%.

What will happen if we listen to the advisers and return the pension threshold to the pre-reform level? The calculator is ruthless. The proportion of the working-age population automatically falls to 34.8%, while the proportion of pensioners increases to 42.5%.

Translated into understandable language, when the universal pension system was introduced in Russia, one pensioner accounted for 2.52 employees. With this ratio, the system had normal solvency. It started to exhaust itself by the end of the 2000s and early 2010s.

If everything is left as it was, one pensioner would account for 0.81 employees. So it will be impossible to talk or even dream about any decent pensions. That is precisely why the threshold had to be raised by five years in order to maintain a relatively working ratio of 1.65 employees per 1 pensioner.

As is clear from the presented figures, all these lamentations about “every 7th person will not live up to retirement age” contain nothing but populist demagoguery. Likewise, there is no “mistake of the Ministry of Finance and the Pension Fund of Russia”.

No, it’s certainly possible to go back to the way it was before. Just think, the amount of pension payments to the Pension Fund will jump by 46% at once, from the present-day 8.6 to 12.55 trillion rubles. But then critics will have to clearly say where they are going to find the missing 3.95 trillion in pension payments?

Expenses for whom are supposed to be cut — for doctors, teachers, kindergarten teachers, and maternity capital? Or maybe just raise taxes on citizens’ incomes? Currently, about 3.65 trillion rubles are collected through the personal income tax. Raise the tax from 13% to 26% and that will be what’s missing?

No? Then where, in the opinion of the guardians of “for the good of the people”, is the “error of the Pension Fund”?

Aleksandr Zapolskis

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