Russia’s babushka time-bomb
Moscow-based investment bank Renaissance Capital also expects this segment of the demography to spur politically risky pension reforms.
Russia’s pension system is coming under increasing strain thanks to growing life expectancy — particularly among women — and a shrinking labour force due to the collapse in birth rates in the 1990s.
Since the introduction of the current system, the average life span of the Russian man has risen to 63.4 years, up from 58.7. Over the same period of time, the life expectancy for the country’s women has risen to 75.4 years, up from 71.9.
Russian women are thus likely to claim a pension for 20 years after retirement at 55. Compare this to the three to four years that the average Russian man gets.
Little wonder that it’s the babushka segment of the demographic that is giving Russian policymakers cause for pause.
“This is becoming expensive. Russia spends 6 percent of GDP on pensions compared to just 1 percent of GDP in Mexico.” writes Renaissance Capital Chief Economist Charles Robertson in a note.
Unless the retirement age is raised, spending on pensions will expand by a third in real terms over 2011-2030, he adds.
As evident elsewhere in Europe, raising the retirement age is politically fraught. Pensioners make up a substantial chunk of the electorate. But the finance ministry is considering a gradual increase in the retirement age to 62.5 for men and 60 for women to reduce future pension expenses. This will save around 0.5-1.0 percent of GDP per annum, Robertson estimates.
He also expects the government to push through changes to the pension tax scale as well as reduce pension payments and divert money to healthcare.
Don’t expect these changes to take place before 2012.
That’s when the country’s presidential elections take place and none of the candidates will want to risk the ire of the babushka brigade.