Will Belarus Raise Retirement Ages Again?

Experts believe that even equalization of retirement ages for men and women will not be enough.

In 2022, the first stage of raising the retirement ages was completed in Belarus. The business community is proposing not to stop and equalize it for men and women. Will the authorities take such a step in difficult economic conditions and what are the alternatives? The website zerkalo.io asked the economist Kateryna Bornukova.

Why did they start talking about raising the retirement ages for women?

This year marks the end of the pension reform phase that began in 2017. Its main feature was to raise the retirement age. Women in Belarus retire at 58 and men at 63 starting from 2022.

This made it possible to reduce the burden on the Social Security Fund, but did not solve the problem of its sustainability. In January-May, the expenditures of the Social Security Fund amounted to 8.4 billion rubles, and revenues - 8.7 billion. Still, 510 million of these revenues were subventions from the country's budget. Economists believe that the Social Security Fund budget deficit can be discussed without the subsidies.

"For the first quarter of this year, the deficit of the Social Security Fund was 0.9% of the GDP. This deficit will only grow because the population of Belarus will continue to age. This also means that the volume of contributions will decrease, and accordingly, there will be fewer funds for paying pensions. After all, one of the ways out of this situation is to increase the retirement age,” Kateryna Bornukova, Academic Director of BEROC (Kyiv), shares her assessment.

According to her, even at the beginning of the reform it was clear that raising the retirement age by three years would not be enough, a second similar stage was needed.

"The most appropriate way would be to equalize the retirement ages for men and women, because there are no genuine reasons to make the ages different," the expert says, emphasizing that women in Belarus live longer. "If we talk about social compensation for the birth of children, then it is received in the form of parental leave, which is mainly taken by women."

Belstat does not provide information on how long Belarusians live on average, but you can see life expectancy in the demographics reports. This year, mainly men born in 1959 and women born in 1964 retire. So, the life expectancy for men, according to the statistics committee, is 66.2 years, and 75.4 years for women. But for those who will retire later, this figure is lower. Actually, as the Ministry of Health reported in 2020, life expectancy for women then was 78 years, and 64 years.

At the same time, healthy life expectancy for men is only 61.4 years, and 69.3 for women. It turns out that the average man can enjoy much less well-deserved rest, and retires with a larger set of health problems than the average woman.

"Back in 2016, BEROC made calculations that showed that even equalizing the retirement ages for both sexes would not be enough. Our simulations then showed that it would be necessary to raise it to 65 years for both sexes, so that it would help to keep the deficit of the Social Security Fund under control in the future for 10-20 years, that is, to keep it below 1% of the GDP,” she says.

However, raising the age to 65 years is unlikely in the current demographic conditions, according to Kateryna Bornukova, primarily due to the life expectancy of men.

"There are new demographic challenges, including declining birth rates, judging by what the newborn figures hide. Although we remember that it decreased dramatically between 2016 and 2019, when the data was still open. Additionally, it seems that there is a significant emigration, and mostly people of working age are leaving. That is, the demographic situation is deteriorating faster than forecasts suggested," she says.

"Given these new demographic data, in theory, even raising the retirement ages for both sexes to 65 years old would not get rid of the urgent problems with providing pensions."

What options do they have besides raising the retirement ages?

The expert believes that there are no good options to solve the problem of replenishing the Social Security Fund right now.

"Considering that there is no option for raising up to 65 years, it is better to introduce a saving scheme. But this is a difficult task, because it creates additional problems for the system today in order to solve them in the distant future. If today the entire amount of contributions go to the Social Security Fund, then under a saving scheme, part of the funds will have to be transferred to an accumulative pension fund, and it will start to make payments in 20-30 years. However, this decision is necessary in the long run: we can see from the example of our neighbours that it gives the results.

Belarus has an element of a voluntary accumulative fund system. But it did not turn out to be successful, on the one hand, because it is an additional cost for workers, on the other hand, it is affected by economic, political and even military instability," the economist notes.

"In this situation, it is hard to imagine that someone would voluntarily want to give away part of their salary [to save for a future pension]. Also, we don’t have a culture of such savings, but there are negative factors and great uncertainty,” the BEROC Academic Director continues.

In addition to the voluntary accumulation of pensions, the authorities have the opportunity to motivate pensioners not to rush to retire but to continue working with the prospect of receiving a higher income later. And also to fight against payments of envelope salaries."

Will the authorities decide to raise the retirement ages again?

The first stage of the pension reform has been completed, but the problems have not been completely solved. In this situation, the question arises whether the Belarusian authorities will dare to implement proposals to equalize the ages for men and women, as well as other measures to reduce pressure on the pension system in the near future.

"On the one hand, there is objective pressure on the budget: revenues will fall, while expenses will grow. There is a temptation to continue raising the retirement ages right now. On the other hand, such a decision is always unpopular precisely because it is perceived as unfair. People think that they paid their contributions all their lives, knowing that they will have the same conditions of the game, and when they change dramatically, they feel deceived."

The situation is ambiguous. Being in a difficult situation with financial difficulties, the authorities may decide to take this measure, as they did during the recession in 2015-2016, not finding alternatives to it, or they may try to avoid making unpopular decisions.

"The choice is between low pensions for current pensioners, if the retirement ages are not raised, and maintaining pensions at an acceptable level, offending people of pre-retirement age by raising it. Therefore, I fully admit both courses of events," Kateryna Bornukova says.

The flaw in the pension system that Belarusians suffer from

We can understand the feelings of those who were about to retire, but the pension prospect was pushed back because of the reform. However, this solution is only one of the consequences of maintaining a pure distribution system. Nevertheless, the problem did not appear recently and not even in 2017. It has been known for at least the last 20 years," says Kateryna Bornukova. This means that both the state and citizens should take some action even then.

"The distributive pension scheme is terribly unfair because it "takes" money from those who work now, with no guarantees of payments in the future. It is a fact, we have known for a long time that it is unfair. We also knew a long time ago about our current demographic realities, perhaps not as pessimistic as they are now, but still. After all, everyone who participates in the labour market today or is already retired was born more than 20 years ago, so we also need to ask ourselves why this did not bother us before. And now we suddenly woke up and found out what was happening,” the expert argues and moves on to the lost perspective of solving the problem. "Replenishment of the Social Security Fund at the expense of income from the privatization of state-owned enterprises is the only way to somehow correct this unfair situation without a sharp increase in the retirement age (for now, while other measures are being implemented to solve problems with pensions. - Approx. ed.).

However, this prospect in the current economic and political conditions has become virtually impossible. Currently, investors are unlikely to be interested in the privatization of even the most previously successful and attractive state-owned enterprises.