WELFARE, PENSIONS AND SOCIAL BENEFITS IN RUSSIA

WELFARE IN RUSSIA

In the 1990s, economic transition and the end of Soviet-era public welfare forced more Russians into poverty as state social support programs failed to meet the social needs of a new economic system. Most enterprises provide an extensive social safety net for their workers, including maternity leave, child allowances, housing, paid vacations, and medical care. Worker pensions are funded by employers through a single social tax and by a direct assessment on self- employed workers and independent farmers. However, many workers are forced to postpone retirement because the post-Soviet pension system, which is Russia’s largest expenditure for social welfare, has not been adequate to provide for retirees. When the decreasing ratio of active workers to pensioners threatened the system’s viability, in 2002 Russia introduced a new system in which a portion of the mandatory pension payments of employers is invested in pension funds whose proceeds are earmarked for the pensions of workers born after 1967. Participation in private pension funds is expected to increase rapidly by 2010. Between 2002 and 2004, average monthly benefits increased from US$45 to US$58. [Source: Library of Congress, October 2006 **]

In 2005 a major welfare reform program began with a very unpopular monetization of privileges such as free transportation and medicine. Subsequently, monetization was made optional, and in 2006 less than half of recipients accepted cash compensation. In early 2006, about 52 million Russians were receiving some form of welfare. In 2006 officially 15 percent of the population fell below the minimum subsistence level. However, independent estimates were 25 percent or higher, and the incomes of 80 percent of Russians reportedly were falling. The geographical distribution of poverty was very uneven; in some regions, the rate was below 10 percent, whereas in others it reached 70 percent. *

Government antipoverty measures have been undermined by ongoing high inflation. In 2006 Minister of Economics German Gref called for a fundamental overhaul of Russia’s state welfare system. Most welfare agencies are run at the local or regional rather than the national level, and they suffer from inadequate funding and corruption. No agency ministers specifically to the homeless, whose number has grown since 1991. The Fund for Social Support, which maintains a number of social assistance programs, has suffered from corruption scandals. Private charities do not function as freely or as actively as in the West; in 2005 total charitable donations were estimated at US$1.5 billion. In an effort to stem Russia’s demographic crisis, in 2006 the government doubled child support payments to US$55 per month and offered a one-time payment of US$9,200 to women who had a second child. *

Soviet-Era Social Security and Welfare

The "social umbrella" of the Soviet Union's socialist system nominally guaranteed all citizens employment, health care, child care, pensions, and universal, high-quality education. It guaranteed everybody food, housing and social benefits and ate up as much as 30 percent of the national budget. The benefits were especially good for people who worked directly for the state. Many people have held on to low-paying government jobs since the collapse of Communism not so much for the salaries but for the benefits.

The cradle-to-grave social security system of the state provided free education, low-rent housing, after school recreation; guaranteed lifetime jobs, pensions, worker's holiday camps and free medical and dental care. Women were given a year's paid maternity leave, access to free day-care centers and free abortion on demand.

The government subsidized theaters and concerts; factories and hospitals organize tours and trips and provided workers with homes, kindergartens, sports stadiums, holiday centers, summer camps for children, cultural centers, sports facilities, and rest and rehabilitation spas with whirlpool baths, massages, bee-sting acupuncture, oxygen cocktails, and drinks enriched with glucose, vitamins and pure oxygen. Private charity was forbidden in the Soviet Union because the state was supposed to be able to meet all the workers needs.

Under the Soviet social security system neither entrepreneurship or hard work were rewarded. By the 1980s, many of the more than 200 million citizens covered by the umbrella began receiving fewer benefits or benefits of lesser quality. The Soviet education and health systems, which offered top-quality service only to the country's political, scientific, and cultural elite, were undermined by the infrastructural and organizational failures inherent in such centrally planned systems. The Soviet concept of guaranteed employment eroded the national economy by encouraging slipshod labor and malingering. [Source: Glenn E. Curtis, Library of Congress, July 1996 *]

Social Benefits After the Collapse of Communism

Generous social benefits were reduced or disappeared with the break-up of the Soviet Union. Life has become more difficult for the mothers of small children. Twenty percent of the day care centers were closed in the early 1990s after the Soviet Union break up.

The government continued to pay child allowances for all incomes. Many people continued going work even though they got paid very little or didn’t get paid at all so they continue receiving social benefits. Factories, educational institutions and trade unions continue to provide social benefits such as subsidized housing, gardening plots, discount foods, day-care centers, sports facilities and health benefits for their workers even though salaries wre often months late.

Legislation has established numerous protective devices at the enterprise level to provide a social safety net that is particularly attuned to the needs of women of childbearing age. Thus, family policy and employment policy are inextricably linked. In addition to basic allowances for all workers, special allowances exist for children of military personnel, children with unmarried, divorced, or widowed mothers, and children who are disabled. [Source: Library of Congress, July 1996 *]

After the collapse of the Soviet Union, ballet companies, museums, summer camps, circuses, orphanages, swim teams and the like all lost their government subsides. Thousands of Pioneer camps were sold or rented as profit-making resorts for adults.

Welfare After the Break Up of Soviet Union

In the 1990s, the state's social welfare system retained the bureaucratic complexities of the Soviet era, but it did not keep pace with the needs of society. As runaway inflation devalued the fixed payments of the pension system, many citizens depending on fixed incomes fell below the official poverty line, which in late 1996 was about US$67 per month. In 1996 an estimated 30 percent of those with fixed incomes and about 24 percent of the total population were in that category. The government's failure to index welfare programs also reduced the value of a wide variety of other entitlements that had provided Soviet workers with substantial savings in the cost of living. Nevertheless, Soviet-era programs such as maternity leave, child care, free medical facilities, and housing subsidies remained substantially unchanged in the mid-1990s, continuing expectations that increasingly strained the federal budget. [Source: Glenn E. Curtis, Library of Congress, July 1996 *]

Reforms such as pension indexation and differentiation of individual contributions to pension funds were only beginning to appear in the mid-1990s. By that time, the government's inability to collect taxes and other obligated funds had had a major impact on social programs. In the fall of 1996, an estimated US$3 billion in pension payments were overdue. At that point, the Pension Fund, which is administered by the Ministry of Social Protection, was owed US$8.5 billion by the enterprises that are the main contributors. The federal budget also owed money to the fund, which by mid-1996 had exhausted its commercial bank credits by taking loans to make pension payments.*

Welfare in Russia

As Russia makes the transition from a command economy to a partial free-market system, the provision of an effective social safety net for its citizens assumes increasing urgency. A 1994 World Bank report described the current social-protection system as inappropriate for the market-oriented economy toward which Russia supposedly was striving. Among the major shortcomings noted in the report were the continued major role played by enterprises as suppliers of welfare services, as they had been in the Soviet period; the absence of any coverage for large groups of people and the inadequate level of benefits in some regions; a growing disparity between a shrinking wage base and the demands placed on the system; and the failure to target the neediest recipients. As the economic transition of the 1990s forces more of Russia's citizens into poverty, the state has tried to maintain the comprehensive Soviet system with severely constrained resources. [Source: Library of Congress, July 1996 *]

The system's inefficiency is exacerbated by its fragmentation. As in the Soviet period, allowances and benefits are administered and financed by diverse agencies, including four extrabudgetary funds, several ministries, and the lower levels of government. The Ministry of Social Protection is the primary federal agency handling welfare programs. However, that ministry focuses almost exclusively on the needs of people who are retired or disabled; other vulnerable groups receive much less attention. The four extrabudgetary funds that provide cash and in-kind social welfare benefits at the federal level are the Social Insurance Fund, the Pension Fund, the Employment Fund, and the Fund for Social Support. *

Social security and welfare programs provide modest support for the most vulnerable segments of Russia's population: elderly pensioners, veterans, infants and children, expectant mothers, families with more than one child, invalids, and people with disabilities. These programs are inadequate, however, and a growing proportion of Russia's population lives on the threshold of poverty. Inflation has a particularly deleterious effect on households that rely on social subsidies. Women traditionally have outnumbered men in such households. *

The Fund for Social Support supplements a variety of in-kind social assistance programs in Russia. It is financed through the Ministry of Social Protection and supplements social welfare programs at the subnational level. The federal government has transferred most responsibility for social welfare, health, and education programs to subnational organs but has failed to ensure their access to adequate revenue. The total allocation of transfers from the federal budget to localities amounted to less than 2 percent of Russia's gross domestic product (GDP) in 1992. Thus, the quantity and quality of social services at the local level--including the provision of food vouchers and cash payments to cover specific items such as heating bills--are far from certain as time passes. Under these conditions, local jurisdictions have come to rely increasingly on extrabudgetary sources, the instability of which makes long-term planning difficult. *

Pensions in Russia

Pensions are the largest expenditure of the social safety program. The Pension Fund accounts for 83 percent of Russia's extrabudgetary allocations. At the end of 1994, about 36 million citizens, or 24 percent of the country's population, were receiving pensions, an increase of about 5 percent in the first three post-Soviet years. Two broad categories of pensions are paid in Russia: labor pensions, which are disbursed on the basis of a worker's payroll contributions, and social pensions, which are paid to individuals who have worked for less than the five years needed to qualify for a labor pension. All Russian citizens who have worked for twenty years are entitled to at least a minimum pension. In 1994 about 75 percent of all pensioners received labor pensions. The Pension Fund also finances some child allowances and other entitlements. [Source: Library of Congress, July 1996 *]

The Pension Fund is administered by the Ministry of Social Protection and financed by a 29 percent payroll tax and by transfers from the state budget. Between 1991 and 1993, the real income of pensioners was cut in half as prices rose rapidly and pension indexation failed to keep pace. Inflation also severely eroded the value of the life savings of retirees, and a disproportionate number of pensioners were victimized by financial scams. A 1994 law requires quarterly indexation of pensions, but the law was not observed consistently in its first year, and in mid-1995 the average pension fell below the subsistence minimum for pensioners. Beginning in 1994, the government's failure to pay pensions on time led to large rallies in several cities. In August 1994, an estimated 10 million pensioners did not receive their checks on time, and pension arrears mounted in the two years that followed. By mid-1996 the payment backlog was estimated at US$3 billion. The present system includes an important provision that has kept many pensioners above the poverty line: it allows workers to draw pensions while continuing to work. In 1995 as many as 27 percent of Russian pensioners continued to work after retiring from their primary job. *

Russian and Western experts agree that the pension system requires comprehensive reform--although its rate of payment compliance by enterprises is substantially better than that of the State Taxation Service. The most pressing needs are an effective system of indexation of pensions to purchasing power, an insurance mechanism, individualized contributions, higher retirement ages, and the closing of loopholes that allow early retirement. In 1995 the Ministry of Social Protection began work on a reform that would establish a three-tier pension system including a basic pension, a work-related pension in proportion to years of service, and an optional private pension program. In 1995 Prime Minister Viktor Chernomyrdin admitted that the state budget lacked the money to continue indexing pensions according to living costs. In November 1995, a decree by President Yeltsin, On Additional Measures to Strengthen Payments Discipline for Settling Accounts with the Pension Fund, set stricter reporting standards for payments to the fund by organizations and citizens, in an effort to preclude nonpayment. In the midst of his campaign to be reelected president, Yeltsin then approved two laws increasing minimum pension levels in three stages, by 5, 10, and 15 percent, between November 1995 and January 1996. *

Women are entitled to retire when they reach age fifty-five, and men when they reach age sixty. Nevertheless, financial hardship leads many women to remain in the labor force past retirement age, even while continuing to receive pensions, in order to prevent a drop in their families' standard of living. In 1991 women constituted an estimated 72 percent of pensioners. The disproportion between the genders stems from women's earlier permissible retirement age and their greater longevity. Aside from pensions, women receive other retirement privileges. Mothers of five or more children are entitled to a pension at age fifty. "Mother Heroines"--women with ten or more children--receive an allowance equal in sum to the pension, and the time they spent on child care leave counts toward the minimum twenty years of work required for labor pensions. For these reasons, many women retire before age fifty-five, while most men wait until they reach sixty-two. (Many job categories routinely allow retirement for both sexes before the standard ages.) *

Worker Benefits in Russia

Among other benefits provided by enterprises to their workers are access to special shops that sell subsidized milk for families with low incomes and small children and an allowance to children for the purchase of a school uniform when they start school and again at the age of thirteen. Other regulations focus more specifically on families with small children. These include protective legislation prohibiting the dismissal of pregnant women or women with children under the age of three, banning night work and overtime for mothers of small children, stipulating workload concessions to pregnant women and mothers of young children, and providing flextime, part-time work, home-based employment, nursing intervals, and additional paid and unpaid leave to mothers to care for sick children. Many workplaces also permit informal leave arrange-ments for the purpose of food shopping. [Source: Library of Congress, July 1996 *]

A significant portion of Russian workers have entitlements to housing, child care, and paid vacations, regardless of their rank within an enterprise. Housing entitlements involve either outright provision of a low-rent apartment (most apartment rents are very low) or various forms of cash or in-kind assistance. Moreover, occupants obtain an implicit ownership right extending beyond their term of employment. They may also have the legal title of the apartment transferred to their own names without paying any purchase price. *

Besides housing allowances, most large and medium-sized enterprises provide on-site medical facilities or they contract for outside health care facilities for their employees. The medical care provided through the auspices of enterprises is free and often is of much higher quality than the care available in government-run facilities. Finally, enterprises provide their employees with goods ranging from foodstuffs to consumer durables. The enterprises procure these items through direct purchase, barter, or from their own farms, and make them available at below-market prices. *

The Social Insurance Fund is the administrative mechanism for payments to workers of birth, maternity, and sickness allowances, and child allowances for children between the ages of six and sixteen. The fund is managed by the largest union organization in Russia, the Federation of Independent Trade Unions of Russia (Federatsiya nezavisimykh profsoyuzov Rossii--FNPR) and serves as the repository of enterprise contributions consisting of 5.4 percent of the total payroll . Nominally an independent institution since its establishment in 1991, the Social Insurance Fund is in fact responsible to the FNPR. *

In 1993 an overhaul of the fund's administrative structure began as a result of enterprises' low levels of compliance with contribution requirements, charges of serious abuse by trade union officials, and the government's desire to promote democratic accountability. Since 1993 the management system has been in flux, and the quality of administration varies considerably throughout the country. Most worker contributions to the fund are retained by the enterprise for distribution. About one-half of the money goes to sick pay and one-fifth to subsidize treatment at sanatoriums. Family support includes birth and maternal allowances intended to replace lost wages, but child allowances do not address poverty directly because payments are not in proportion to household income. *

Maternity Leave and Child Allowances in Russia

Women who have an employment contract are entitled to paid maternity leave from seventy days prior to giving birth until seventy days afterward. Maternity leave benefits are based on the minimum wage rather than on a woman's current wage, however. Russia also provides a maternity grant, which is a onetime payment totaling three times the minimum wage or 45 percent of the minimum wage in the case of mothers who have worked less than one year. In order to receive a maternity allowance (or sickness benefits), a woman must have an employment contract. The maternity allowance amounts to 100 percent of the mother's salary, regardless of her length of employment. [Source: Library of Congress, July 1996 *]

Maternity allowances in Russia are followed by a monthly child allowance of 80 percent of the minimum wage in the case of children up to eighteen months old. This allowance may be supplemented by a child-care allowance, set at 35 percent of the minimum wage, to compensate for earnings lost in the course of caring for children in this age bracket. The latter allowance is paid to mothers over the age of eighteen who have been in the labor force at least one year. An additional compensatory child-care allowance, equivalent to 35 percent of the minimum wage, is available to mothers or other caretakers of children under the age of three. *

Russia also has an extended child allowance of 45 percent of the minimum wage (60 percent for children of military personnel, children living with a guardian or in an orphanage, and children with AIDS) to assist families with the care of children between the ages of eighteen months and six years. Single mothers and those who receive no child support from the father of their child may obtain an additional 45 percent of the minimum wage up to their child's sixth birthday; this figure is then increased to 50 percent and remains effective until the child is sixteen. In May 1992, special cost-of-living compensations were introduced to cover the increased expense of meeting children's basic needs. These compensations ranged from 30 percent of the minimum wage in the case of children less than six years old to 40 percent in the case of those ages thirteen to sixteen. *

Russia also has an overall system of family benefits. These can be grouped into three broad categories: those payable to all families with children, regardless of income or other qualifying conditions; those payable to working mothers; and those payable to disadvantaged families. *

Unemployment Compensation in Russia

The communist system, for all its economic and moral deformities, provided virtually universal employment, so that every able-bodied citizen had an opportunity to earn income and thus social security. In postcommunist Russia, the phenomenon of unemployment is openly acknowledged and growing. At the end of 1995, some 8.2 million people were registered as unemployed, indicating a far higher actual number. Three years earlier, about 5 million were registered. The "new poor," in the parlance of the World Bank, put a considerable strain on the resources available in Russia for social welfare. [Source: Library of Congress, July 1996 *]

Relatively few unemployment checks were given out because people stayed at their old jobs even though they didn't get paid. Officially Russians who have worked for 12 consecutive weeks and lose their jobs receive 75 percent of their average pay for the previous two months for 12 weeks, then 60 percent for the next four months; then 45 percent for the next year. Another 10 percent is provide for each dependent. They are entitled to a minimum monthly pay for year paid for with a 2 percent payroll tax. Few unemployed people saw these benefits.

Administered by the Ministry of Labor, the Employment Fund, which is financed by a 2 percent payroll tax from all enterprises, disburses compensation to jobless people. The level of compensation, already low in 1995, was expected to drop further if unemployment rose. As part of its assistance package to Russia, the World Bank is providing a computerized system that will help the country register claimants for unemployment and pay adequate benefits. *

The Ministry of Labor's subsistence minimum is based on the cost of nineteen staple items considered sufficient to ensure survival, plus an estimated minimum cost for utilities, transportation, and other necessities. The calculation varies according to age-group and region; trade unions use other formulas that usually expand the number of people identified as living below the poverty line. In early 1996, the State Duma considered a law that would make the Ministry of Labor's figure the legal basis for establishing minimum wages, pensions, and other levels of social support. Barring such legislation, the subsistence minimum has no legal status. *

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Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated May 2016

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