Pensions: lower guarantees for the sake of stability
Presidential Decree No 389 of September 3rd, 2013 envisages that as of January 1st, 2014, the right to a retirement pension by age or seniority will be granted only if Social Security Fund payments have been made for at least 10 years. Currently the limit is 5 years.
The state does not dare to carry out a full-scale pension reform, but negative demographic trends and decreased pension fund revenues are forcing the authorities to reduce social guarantees for the retired. In the short-term, the said amendments will help the state to maintain the level of pension payments acceptable for the majority at the cost of marginalized groups, which will be excluded from the state support programmes.
The Belarusian authorities’ actions imply that it has become more challenging to fill the pension fund. According to the World Bank forecast, Belarus’ pension fund deficit may occur as early as 2014 due to the aging population. The Belarusian authorities have made similar assessments in the 2011 – 2015 National Demographic Security Programme. However, with 2015 being the year of presidential elections, the country’s leadership cannot afford a pension fund deficit or unpopular measures, since pensioners make up the core electorate of the incumbent president.
The authorities cannot increase the size of the pension fund contributions; as the current size of the contributions is quite high, this would be an unpopular measure. In Belarus, the amount of social tax is higher than in other CIS countries, making up 34% of the payroll. In Russia, social tax rate is circa 26 %, and in Kazakhstan - 11%.
Fairly large social groups will be affected by lower standards of social guarantees. In July 2013 Prime Minister Myasnikovich said that circa 445,000 working-age people in Belarus “do not work anywhere, do not contribute to the economic development and at the same time enjoy social benefits”. Potentially, with these amendments the government will try to encourage the population to take up legal employment, which in turn will result in increased payments to the Social Security Fund.
Hidden unemployment and ‘shadow’ economy employment issues are periodically addressed by various officials, including Alexander Lukashenko. In July 2013, Prime Minister Myasnikovich proposed to solve this problem by introducing a tax on the unemployed.
In 2013 Belarus’ social state has been consistently shrinking. Economy Minister Snopkov said that in the near future housing tariffs would be increased to 15% of the average consumer basket (currently 7-8% on average). De facto, since August 2013 the preferential housing loans programme has been suspended (the programme had been malfunctioning since the 2011 crisis). In education, fee-based services are expanding. Extra-curricular activities at secondary schools have been fee-based since February 2013. In addition, Economy Minister Nikolai Snopkov also said that in 2014 the government planned to stop regulating bread and prices of other products.
Most recently, Lukashenko proposed to introduce an exit fee of USD 100 for those who travel abroad. This proposal is unlikely to become a reality, but it drives the population’s attention from significantly reduced social benefits.
The Labour and the Tax Ministries are considering the possibility to include persons engaged in some economic activity without forming a legal entity in the social security system. When the decree No 337 comes into effect, the number of private entrepreneurs is likely to reduce due to the possibility of reducing the tax burden when switching to a tax payment as an individual. 95% of self-employed, including PE, pay insurance premiums on the basis of the minimum wage. The number of self-employed citizens is expected to increase, the number of insurance contributions to the pension system from PE will decrease, the number of citizens who will pay a fee to finance government spending will decrease by several tens. Self-employed citizens have the alternative not to pay social security fees and save resources for future pensions, which, given the gradual restriction by the state of pension requirements could be a more long-sighted option.