Analysis of Average per Capita Pension Security in the Regions of the Russian Federation and the Methodology for Differentiated Territorial Pension Indexation

Abstract

The current pension reform of the Russian Federation requires in the course of its implementation an assessment of a number of indicators that characterize its effectiveness. Among the indicators, we consider it expedient to single out the pension replacement ratio, which reflects the average per capita pension security. This indicator was put into operation in 1919 with a view to non-violent ways of resolving the existing social conflicts by the International Labor Organization (ILO) Convention No. 102 “On Minimum Standards of Social Security”. This coefficient establishes norms for the payment of pensions for old age, disability and the loss of a bread-winner in relation to the level of wages. The analysis of the substitution coefficient for the Udmurt Republic (UR) and the RF revealed the following: while the average salary in Russia is consistently higher than in the UR, the average pension is practically at the average Russian level and even slightly higher. This leads to the fact that the replacement factor for the UR is about 0.5 (which is higher than the Convention’s 0.4), and on average in Russia this coefficient does not exceed 0.35. Based on this fact, we can state that the level of pension provision in UR, despite the rather low level of wages, is above the average for the Russian Federation. Thus, we consider it advisable to conduct a comparative analysis of the level of pensions in the regions of the Russian Federation using this ratio. A comparative analysis of the regional replacement rate was conducted for all regions and the Russian Federation as a whole, based on the official indices of the average labor pension and the average wage level. The analysis showed that in about a third of all RF subjects the coefficient is below the established minimum ILO. In this regard, we consider it expedient to ensure compliance with the requirements of ILO Convention No. 102 “On Minimum Standards of Social Security” in these regions. The proposed Methodology of differentiated territorial pension indexation will make it possible to approach these requirements in the whole of the Russian Federation. It is recommended to use the replacement coefficient regional. Such a measure, in our opinion, will help raise the percentage of indexation in the most problematic regions, from the point of view of the replacement rate, and more effectively raise the lowest pensions in the regions, and also reduce the costs of the FIU for indexation.