Kudrin: Russian economy to choose between increasing retirement age or taxes

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Former Russian Finance Minister explained that "if we don`t raise the retirement age, it will inevitably lead to tax raise"

Russian economy will have to choose between lifting the retirement age and increasing taxes.

This was announced at the press conference by former Finance Minister, Chairman of the Civil Initiative Committee Alexey Kudrin.

"If we don`t raise the retirement age, it will inevitably lead to tax raise," he said.

According to Kudrin, the Russian economy is likely to face lack of resources to maintain its pension system, and the demographic challenge will be the most significant one for the country.

"Now we have entered an unfavorable period, when the number of working-age population decreases year by year and this trend has set since 2008. There are fewer taxpayers and more pensioners. We can draw a number of serious conclusions related to the pension, health and social security systems, as they will experience serious problems and bring new risks for the Russian economy," said Kudrin. He underlined that in those conditions it was extremely important to keep the population motivated to make pension contributions.

To abolish contribution system is to "shoot in our own leg"

To abolish the contribution pension system and return to the former unfunded one is to "shoot in our own leg", when the Russian economy, suffering from crisis, needs investments, said Kudrin.

"In times when Russia needs investments, this measure will take them away. As if we shot in our own leg", said Kudrin.

He reminded that the whole new economy model of Russia was based on investment growth. Now, with the closure of foreign markets, pension contributions are an important investment resource.

It will take 10-15 years to abolish the contribution system and switch to the voluntary format of pension savings, as suggested by the social government block, believes Kudrin. We should wait till people finally turn to the voluntary system. It will take some time. In Russia, it takes from 15 to 20 years to get accustomed to the market, to believe the state and government institutions," he said, adding that those were upbeat assessments.

MDM Bank Chairman on abolition of investment part of pension

The abolition of investment part will virtually destroy the pension system in Russia. This was announced by Chairman of the Board of Directors, MDM Bank, Oleg Vyugin at the press conference.

"If the investment part is abolished now, then the pension system will be virtually destroyed. We`ll be able to get back in 10 years only," he said.

According to Vyugin, we can`t discard the contribution system, as it is a major driver of economic development and has no alternatives as a source of "long investments."

"The contribution system is necessary. The voluntary one won`t work, only after a long period of sustainable economic development. But the investment part is a very important impetus for the development," says Vyugin, underlining that the contribution system has started to work.

Retirement age raise: pros and cons

The Minister of Economic Development and Trade Alexey Ulyukayev said earlier that he supported the idea of raising the retirement age and considered it possible to implement it gradually in 10-15 years. According to him, this issue is being discussed "at the level of the statements made by some government members who express more of their views than those of the ministries."

Commenting on the position of the Ministry of Finance on the issue, Assistant Minister of Finance Svetlana Nikitina said that the issue of lifting the retirement age wasn`t among high priority measures, but was discussed as part of the reforms planned for the medium term.

The Minister of Labour Maxim Topilin said to TASS that his agency didn`t agree with the position of the Ministry of Finance on raising the retirement age. According to Topilin, "it`s strange to say that we will be saving money when the retirement age is raised." "We have to consider the whole model – we should discuss whether the amount of pension will increase or not, because life expectancy will grow and the burden on the budget and employers won`t," he called.

Russian Deputy Prime Minister Olga Golodets previously reported that the government doesn`t consider the possibility of raising the retirement age. "No, this issue wasn`t included in the plan, wasn`t put on the agenda, and we follow the previously outlined pension scheme," she said to the reporters.

At present, Russian women retire at the age of 55, and men - at the age of 60.

Text and pictures by TASS