Will higher pension age help curbing Social Security Fund deficit in Belarus?
The Belarusian economic authorities are considering three options for a gradual increase in the retirement age in Belarus. The revision of the retirement age has been postponed thanks to a gradual rise in the seniority requirement for obtaining benefits by age. The Social Security Fund deficit and the lack of budget resources do not leave the choice for the Belarusian authorities, who are likely to adopt one of the options to raise the retirement age as of January 1st, 2017.
The Belarusian authorities are considering three options for a phased increase in the retirement age in Belarus. The basic option is to increase the retirement age for men from 60 years to 65 years for women - from 55 years to 60 years. Phased scheme involves an increase in the retirement age by six months during 2017- 2026. The third alternative envisages raising the retirement age by three years for men and women or by five years for women and three for men.
Currently, the retirement age issue has been postponed by introducing a gradual increase in the length of service required for a retirement pension. Since January 1st, 2017, the length of service required for a pension will be increasing by six months each year. In 2026, retired workers will receive a seniority pension if they worked for at least 20 years. In addition, the authorities have deterred readjusting the pension size by inflation rate. In December 2015, the real size of pensions decreased by 5.2% compared with December 2014. That said, the inflation rate falls far short of the devaluation of the national currency.
The need to raise the retirement age is due to an expected deficit of Social Security Fund, which provides pensions. In late 2015, the SSF deficit totalled USD 215 million, but it was offset by previously accumulated funds. As of January 1st, 2016, there were 2.6 million pensioners in Belarus, or 27.3% of the total population. Each month the government spends circa USD 400 million on pensions. Due to the demographic situation in Belarus, the proportion of pensioners will continue to increase, while the number of employed will reduce. In order to address this growing imbalance, the government either has to reduce pensions or to increase subventions from the state budget to the SSF. The average pension in December 2015 in Belarus totalled USD 153, i.e. there is no much room for further reductions. In addition, due to budget deficit, the state budget is unable to increase subsidies to the SSF. The only option therefore is to increase the retirement age. This measure will reduce the number of pension recipients and will preserve the pension size.
Overall, due to the economic recession, the Belarusian authorities have decided to gradually raise the retirement age, which will start on January 1st, 2017. As a result, the SSF will be able to save some funds for future payments, when the number of pensioners starts growing.
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.