Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Cabinet Backs Pension Revamp Bills

The government on Friday backed a host of bills that lay the ground for revamping the pensions system, but failed to agree on how exactly pension funds should be invested, Deputy Prime Minister Valentina Matviyenko said.

"The country has never had such a wide-scale project as pension system reform. This reform concerns basically the whole population of Russia," she told a news conference.

Pension reform, a fresh assault on Soviet-style social care, has been in the pipeline for more than a year, and is now among the key challenges that President Vladimir Putin's government faces as it carries out structural economic reforms.

The reform, to be launched next year, aims to replace existing state-guaranteed pensions, which currently average only $35 per month, with a combination of a flat state-funded pension and flexible privately financed pensions.

Under the current system, employers pay a social tax, about 90 percent of which goes to the state pension fund, which then pays pensions. But this system may collapse under the weight of an aging population and falling birth rate.

Under the new system, pension payments would be split into three parts, with half going to the state pension fund to provide for guaranteed pensions.

Another 40 percent would go to special insurance funds and the remaining 10 percent would be accumulated in private, personal accounts to be invested later, Matviyenko said.

But the government failed to come up with a sound plan for how funds should be invested and how the state would guarantee them — a vital condition in a country where people have little trust in state protection of their savings after a financial crisis in 1998. "The government has sent this bill for further reworking, because it is the most difficult issue, and the draft left many questions unanswered," Matviyenko said.

On the 10 percent of pension payments that would go into personal accounts, she said the government would select among the investment funds proposed by private companies to handle this money. The funds involved are expected to reach 100 billion rubles ($3.5 billion) in around 10 years.

She said the choice of investment instruments would be based on "international experience" and may include "foreign currency," but declined to give more details at this stage. The government expected parliament to start debating the pension package, possibly without the investment bill, before it breaks for summer in July.

Parliament is also expected to give final approval to the bills by the end of the year, for the reform to come into force next year as planned, she said.