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The Russian pension system: prospects for reform


Phelps, Janie Michelle (1998). The Russian pension system: prospects for reform. Master's thesis / Doctoral dissertation.


The Russian system of old-age income provision, both because of its former socialist orientation and its financial difficulties, has been slow to adapt to the new market realities in the Russian Federation. If some form of old-age social insurance is to remain intact without becoming a huge fiscal burden on the rest of the Russian economy, serious and immediate consideration of fundamental reforms must take place. A shrinking tax base, in combination with contribution evasion and arrears, has led to an increasing revenue shortfall at the same time that lax early retirement rules have led to an explosion in the number of system beneficiaries. A movement to privatize pension systems world-wide is currently being led by the World Bank. A key feature of the World Bank's privatization scheme is the reduction of publicly funded pension pillars to a subsistence minimum, and the movement of workers contributions into privately managed accounts. This dissertation presents a model of the Russian economy as the basis for analysis of reforms to the Russian pension system. A perfect foresight general equilibrium model of life-cycle savings is used to simulate the responses of the Russian economy to a set of reform proposals. A baseline set of parameters for the model is described here, which it is felt best represents the contemporary Russian economic setting. Simulation analysis is presented for three system alternatives available in a World Bank-type privatization of the Russian pension system. These include (1) size of the new public pillar; (2) speed of the transition to a new system; and (3) the choice of tax base to finance the future public system and transition obligations. Analysis focuses not only on the long-run welfare potential of World Bank-type privatization schemes, but also on the possible transition paths such a privatization might follow, and specifically, how the welfare of generations alive during this transition might be affected. Sensitivity analysis of the model to different parameter choices is also presented.


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Phelps, Janie Michelle