Faster modernisation of the Russian economy is needed, with measures to tackle the country’s pension system a key consideration according to new reports from the OECD.

The Review of Labour Market and Social Policies in the Russian Federation and Economic Survey of the Russian Federation have been launched today in Moscow, and highlight a number of areas where Russia is performing well while raising social inclusion as an area for improvement.

Recent pension reforms are likely to eradicate pensioner poverty, though raise questions about the long-term financial sustainability of the private pensions system, the OECD said.

Reforms rapidly increased pension entitlements, aiming to achieve a pension replacement rate of 40 per cent of individual earnings after 30 years of contributions. The OECD said that while this is not high by international standards, the low ages at which Russians tend to draw pensions already result in a shortfall in pension contributions relative to benefits.

The overall structure of Russia’s pension system was considered to be “generally sound”, such as redistributive components designed to combat poverty and strike a balance between pay-as-you-go financing and pre-funding of income-replacement benefits.

“However, the system is complex and lacks transparency. Furthermore, frequent ad-hoc changes in the parameters and rules of the different components have led to a great deal of uncertainty about retirement incomes for both pensioners and workers. The current pension system combines fairly meagre benefits with a high fiscal cost, primarily a result of the early age at which people draw pensions,” the labour market and policy review stated.

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