Nigina Beroyeva
Prime Minister shaping Russia's social system
The government approved the concept of Russia's development through 2020 on Wednesday, October 1, a dramatic advance that no one had expected.
The Prime Minister listed the goals he expected to reach by 2020, but in reality, Russians can expect changes in their lives much sooner than that. The greatest reform is expected in the retirement pension system between 2009 and 2010.
"In 2009, the basic labor pension rate will be raised twice, on March 1 and on December 1, by a total of 37.1%. The pension's insurance part will be indexed on April 1 by 15.6%," Mr Putin said.
According to the Prime Minister, the state pension's insurance part will be augmented 10% from the current average of 2,800 roubles on January 1, 2010, for those who reached retirement age prior to 2002.
For those who worked during the Soviet time, that is, who retired before 1991, pensions will be increased by 1% for each year of service in the Soviet Union. For example, if someone worked 10 years during the Soviet time, their insurance pensions will be augmented by 10%.
"As a result, the average retirement pension will double in 2010," Putin said.
"Now for those whose pensions will be accumulated after 2010. After 30 years of service, one should be entitled to a pension equal to or above 40% of the monthly salary for which the employer paid their pension insurance premium. To accomplish this, the government has decided to introduce a single insurance premium rate of 26% in place of the unified social tax.
"No insurance premium will be paid from annual incomes above 415,000 roubles ($15,300). The bracket will be indexed in line with the average wage growth. We deliberately did this to avoid a situation in which people with modest incomes are forced to contribute to the future pensions of those who are currently earning much more than they are," he added.
The current unified social tax rate is 26% as well, but it is not flat. When someone's annual income crosses into the 280,000-600,000 rouble bracket, his employer is required to pay 10%, and above 600,000 roubles, 2%. The 26% pension insurance premium will be a flat rate, but it will only be paid for amounts below 415,000 roubles. Suppose you make 500,000 roubles a year (about 40,000 roubles a month): only 415,000 roubles of that amount will be subject to the 26% tax, while the surplus 85,000 roubles won't be subject to any social tax.
The structure of payments will change, as well. The 26% social tax paid by employers is currently split between the federal budget, the pension fund, and the compulsory medical and social insurance funds. Under the new scheme, the entire 26% premium will go to the pension fund, which is expected to eliminate the pension fund deficit.
"Overall, with compulsory medical and social insurance, the premium will not exceed 34% of the company's payroll fund," Mr Putin explained.
Essentially, employers' tax burdens will indeed grow by 8%, 5.1% of which will go to the medical insurance fund, and 2.9% to the social insurance fund.
"I can predict the response of our business leaders," Putin said. "But I would like to point out that we are making these decisions amid dramatically tightening global financial markets. The changes will certainly inflict higher costs on businesses, but we will try to think of schemes that will help keep overall tax burden in check."
For example, the government will compensate for possible losses that may result from the increased tax burden on small businesses, high-tech companies and agri-businesses for five years (until 2015). It is not yet clear how the scheme will work and which companies will get on the lucky list, but the government is working on it.
Following this discussion, Vladimir Putin went on to speak of current issues. He repeated that the government planned to allocate funds to support stability in the country.
"The recent events in the Caucasus have shown how important it is to uphold the armed forces' combat capability. We plan to allocate an additional 80 billion roubles to purchase advanced military equipment, and to deploy our forces to whatever places we find advisable," the prime minister said.
