201. Reform of the retirement benefits system aims to alter it from a distribution system through the Social Fund to a retirement benefits system based on the personal savings of each citizen. Some of the important developments in this area include:
· A change in the benefits formula to take into account the length of service, salary rates and retirement benefits premiums paid, as well as the introduction of a registration system of insured employees and employers.
· Establishment of a unified self-managing system for the collection and accumulation of social insurance payments and the assignment, accrual, recalculation and payment of retirement benefits.
· Introduction of new budget planning principles; daily monitoring of the movement of financial resources based on a national electronic database.
· Regular indexing of personal retirement benefits accounts at 75 percent of the actual average national salary.
· Gradual reduction in employers’ contributions and increases in the contributions paid by employees. In 2002 compared to 2001, retirement benefits premiums declined by 4 percent.
· Passing of the Law on Non-state Pension Funds. The new law is to provide for the development of a supplementary system of voluntary retirement benefits insurance.
The issues that require attention in the medium-term include:
· reduction of the Social Fund’s budget to 5.6 percent GDP in 2001 as a result of reduced employers’ resources for payment of salaries and wages;
· reduction in the number of pension fund contributors per pensioner;
· low pension levels that do not fully satisfy the social needs of elderly people;
· arrears in the payment of pensions;
· in-kind payment of pensions;
· amounts accumulated in personal retirement benefits accounts do not in fact accrue and are not invested but are rather used for current financing of pensions;
· the number of pensioners qualifying for long-term retirement benefits amount to 7.2 percent of all pensioners; and
· lack of regulation of the activities of non-state pension funds.
202. Hence, further reform of the pension system must focus on ensuring adequate living standards of elderly people, establishment of a financially sustainable pension system, and introduction of the elements of accumulative system.
203. The key priorities of pension reform that will help to secure positive development are:
· mitigation of social tension caused by inadequate level of pensions;
· strengthening financial sustainability of the Social Fund;
· timely payment of pensions in cash;
· gradual increase in the living standards of pensioners; and
· improvement of the management in the state social insurance system;
204. Further development of the pension system will be supported by the following priorities:
· preparation for the introduction of an accumulative retirement benefits system; and
· development of alternative forms of social insurance that will enable citizens to obtain additional pension insurance.
The following mechanisms are anticipated in order to achieve the desired stabilization and development priorities:
· Require people engaged in business activities to pay social insurance premiums.
· Restructure debt arising from unpaid employers’ contributions for social insurance.
· Prohibit in-kind insurance payments.
· Introduce a differentiated regressive social insurance contribution scale for all types of payments accrued annually by employers on behalf of employees.
· Develop a pension indexing system.
· Develop mechanism of premiums fees for mandatory medical insurance of pensioners.
· Expand the category of persons eligible for social benefits to include pensioners receiving labor pensions with incomplete insurance records and that are below the level of the social benefit.
· Maintain the ratio of the base pension to the average salary in the Republic at the level of 12 percent and gradually transfer its payment out of the national budget.
· Activate information campaigns to foster the collection of premiums.
· Ensure transparency of the Social Fund’s revenues and expenses.
· Develop a system of collecting insurance premiums from rural producers.
· Develop legal documents to support the development of the state social insurance system and promote the development of a private retirement benefits system.
· Reform the remuneration system of wage laborers.
· Perform economic analysis of the equity market and investment opportunities for pension funds’ assets; analyze the feasibility of creating reserve funds in the introduction of the accumulative retirement benefits system.
· Build a legal framework for the introduction of accumulative elements into the pension system and provision of guarantees for securing pension assets in future.