Putin’s pension reforms are painful but necessary.
If birth rates in Russia do not rise, though, the painful reforms will be for nothing
With the possible exception of raising taxes, increasing the retirement age is probably the easiest way for a politician to irritate their voters. Yet, in light of the rapid ageing of Russian society, President Vladimir Putin felt he had no choice but to announce an increase in the country’s retirement age from 55 to 60 years for women and from 60 to 65 years for men. The Russian people, including both pensioners and future pensioners, have responded by taking to the streets in the thousands.
The policy is unfair but necessary. In principle, increasing the retirement age is always unfair: how do you explain to someone that they must work longer than their parents and grandparents did? But this time it is also unfair in practice. The fairness of a country’s retirement age should not be determined based on habit, but based on the life expectancy in that country. The average retirement age of 65 years in the developed world is indeed significantly higher than Russia’s. But Russia’s life expectancy of 72 years is dwarfed by the EU average of 82 years. Russian pensioners already have fewer years of retirement to enjoy than their European counterparts. Why would Mr. Putin want to make this gap even bigger?
What good is long retirement with no money?
In fact, the argument for making the golden years for Russian retirees even shorter is obvious: Russia’s population has aged dramatically in the last three decades. Fifteen years from now, the Russian workforce is expected to plunge by 10 million people. If this trend continues, it won’t matter how many years of retirement Russians have at their disposal because there will be no one to pay for them. Most other developed countries are facing the same problem, but they have either increased the retirement age to deal with it, or had a higher retirement age to begin with. By contrast, Russia’s uniquely low retirement age goes as far back as 1932, when it was introduced by Joseph Stalin.
Thus, as painful as it is to admit it, Mr. Putin is actually right on this one. This will be a remarkably unpopular yet indispensable policy, from a politician with a known preference for making decisions based on popularity rather than necessity. But the most startling fact, one largely overlooked by observers, is that this may all be for nothing. Mr. Putin would hate to wake up one day and realise that he let his popularity drop to a five-year-low in vain. But this is precisely what is bound to happen if Russia fails to deal with the core of every demographic headache: birth rates.
If you want a young population, you need more babies
There is a common misconception held far beyond Russia that increasing the retirement age is the solution to population ageing. To be sure, it is one solution, but it is neither sufficient nor the most important. Consider U.S. demographer Ansley J. Coale’s table on the effect of birth rates (at different levels of life expectancy) on population ageing. The proportion of people aged 65+ among the total population is used as a yardstick to measure ageing population.
First, let us look at the table vertically. As we move downwards through the table, we see that the proportion of pensioners in a given society is expectedly higher when the life expectancy is higher. However, we also see that when the birth rate is 1.0, higher life expectancy produces a marginally higher proportion of pensioners. The proportion of pensioners goes from 14.9 per cent of the total population when the life expectancy is 40 to a negligibly higher 16.6 per cent when the life expectancy is 70. In percentages, this demonstrates that a 75 per cent increase in life expectancy (from 40 to 70 years) corresponds to an increase of merely 11 per cent in the proportion of pensioners.
Counterintuitive as it may seem, more people living longer lives does not mean there has to be more pensioners among us. This is even more obvious when the birth rate is 2.0. In this scenario, the proportion of pensioners at a life expectancy of 70 is actually almost just as low as it is at a life expectancy of 40 (it goes up from 5.9 per cent to a mere 6.1 per cent of the total population). Economically speaking, when the birth rate is high, it is no more difficult for the workforce to sustain its retired population when the life expectancy is 70 than when the life expectancy is 40.
Now let us look at the table horizontally. As we move rightwards through the table, we see that the proportion of pensioners in a given society is lower when the birth rate is higher. This contrast is significant, and remains so regardless of life expectancy. As the birth rate goes up from 1.0 to 2.0, the proportion of pensioners goes down by more than half even with a life expectancy of just 40, and the decrease becomes even more notable as the life expectancy approaches 21st-century levels.
In other words, while pension reform can mitigate the effects of population ageing by increasing the size of the workforce and reducing the number of pensioners supported by that workforce, boosting the birth rate can effectively slow population ageing itself. This is by no means surprising, but what Coale’s research demonstrates is the sheer magnitude of the effect. It also demonstrates that, as long as the birth rate is kept high, even high levels of life expectancy do not necessarily have to produce an unsustainably high proportion of pensioners.
Russia’s unique demographic quagmire
It will not be easy to improve Russia’s birth rate of 1.6 (as of 2017), which has already increased significantly from pre-Putin levels under Mr. Putin’s Maternity Capital Program. Most EU countries have an even lower birth rate. But they also have a significantly higher retirement age. Another crucial difference is that they have not experienced an apocalyptic demographic crisis like the one that hit Russia in the 1990s, when birth rates plummeted dramatically in the socio-economic misery of the post-Soviet transition.
Demographic crises are cyclical: those few babies born in the 1990s are now at a reproductive age and are bound to produce fewer babies because they themselves are fewer than preceding generations. Russia’s low retirement age and its demographic crisis in the 1990s are the two highly aggravating factors that are unique to Russia. Coale’s table defines pensioners as people aged 65+ and assumes that the birth rate has been constant over the years, rather than being merely the current birth rate. As neither of these applies to Russia, the calculation used in the table above is insufficient in determining the proportion of pensioners in the country.
Due to inevitable data collection limitations, demographic data are always taken with a pinch of salt in a country the size of Russia. Still, Russia is bound to have a higher proportion of pensioners (and the ongoing cyclical after-effect of the crisis of the 1990s will keep increasing this proportion) than a hypothetical country that shared Russia’s birth rate and life expectancy but not Russia’s two aggravating factors.
If you want people to make babies, make them happy
Mr. Putin should definitely push forward with his pension reform, even though the retirement age proposed in the latest version still falls short of the “gold standard” of 65 years. But he should put even more effort into boosting the birth rate. One way of achieving the latter would be to tighten the country’s abortion laws. As a result of its socialist legacy of abortion on demand, Russia has an astonishingly high rate of almost one abortion per two live births.
Alternatively, if Mr. Putin decides not to limit abortion, for ideological and/or political reasons, there is a far more innocuous option. The beautiful thing about demography is that it is never immune to broader social conditions, as Russia’s demographic collapse in the turbulent 1990s demonstrated so clearly. If Mr. Putin wants Russians to make more babies, he should work on creating the kind of socioeconomic conditions under which Russian adults will feel comfortable starting a family. It might turn out that the best way for Mr. Putin to fix Russia’s grim demographics is simply to do his job properly.
Kristijan Fidanovski is a MA candidate and student fellow at the Center for Eurasian, Russian and East European Studies, Walsh School of Foreign Service Georgetown University, Washington D.C. His research interests are identity politics and public health in the Balkans and Eastern Europe.