16 July 2020, Thursday, 3:23
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The Pension Trap: The Authorities Deprive 55-Year-Old People From Income

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The Pension Trap: The Authorities Deprive 55-Year-Old People From Income

The retirement age increase makes no sense if Belarus delays the reform of the pension system.

The Ministry of Finance and the Ministry of Labour and Social Security will assess the reliability of the retirement age increase and study the impact on pensions, Finance Minister Maksim Yermalovich said at a meeting of the Standing Committee on Budget and Finance of the "House of Representatives," Zautra Tvaye Krainy informs.

The pension age growth started in 2017. Annually it grows by six months. According to the plan, in 2022 women will retire at the age of 58, while men - at the age of 63.

Economist: Growth of pensions is barely possible

- If fewer people receive a pension, other pensioners will really be able to receive a little more," Leu Lvouski, a senior researcher at the Belarusian Economic Research and Education Center (BEROC), says.

But it's not correct to consider this measure in terms of increasing pensions.

- In fact, the spot is not increased but redistributed. We take the money from 55-year-olds and give it to older ones. It's hard to see any economic efficiency," the expert says.

Some changes in the pension system, associated with the retirement age increase, are already observed now. During the first two years, the number of pensioners has decreased. But it is still more than it was at least in 2014.

It is another matter that the retirement age increase may postpone for a while the overhanging problem of pension system inefficiency. This decision helps to buy some time. The current measure will only be effective if it is the first step towards large-scale long-term changes.

The benefit from the retirement age increase is about to run out

The joint pension system works as follows: the state collects money at the expense of employees' taxes and gives it to pensioners. In other words, people working now do not save for their pensions but provide for those who have already retired. And when they themselves retire, it will be formed by contributions of those employed in the economy, the economist reminds.

- This system is very effective when the population grows. After all, then there are two employees per pensioner. But when the population decreases, it stops working, Leu Lvouski says.

This is what happens in Belarus. The population of the country has been steadily decreasing since 1995 when its number was 10.2 million people. In 2000, the population decreased to 10 million, in 2010 - to 9.5 million, and as of 1 April 2019 there were 9 million 465 thousand people in the country.

As the number of able-bodied people in the country also decreases the current pension system is no longer able to function. If 4.7 million people were employed in the economy in 2010, then in 2018 - 4.34 million.

The burden on the economically active group of citizens is growing after the retirement age increase. In 2010, there were 366 retired people per 1.000 people of working age, in 2016 - 429, in 2018 - 438. In 2020, the share of pensioners will reach 26.4%, and in 2030 their number will exceed half of the number of able-bodied citizens.

- The number of pensioners will grow. And the existing pension system cannot be stable in such circumstances, the expert says.

At some point, the effect stipulated by the reduction in the number of pension recipients will run out, Anastasia Babrova, head of the Human Development and Demography Department of the Institute of Economics of the National Academy of Sciences says.