The Adventures of Pension Reform in Russia: Where Are the Mistakes?

Pension reform continues for many years, but its goals have not been achieved: the attempt to introduce the fully-funded system failed, the Pension Fund still relies on the transfers from the state budget, and the increase in the retirement age has caused mass discontent among the population. Comparing the general recommendations for reforming (Polterovich, 2007, 2012a) and the actual policy, we find that the reformers repeated standard mistakes. They tried to copy the modern Western institutions, not taking into account the experience of developing countries and the present resources, as well as cultural and institutional constraints. They didn't seek to compensate the losers; did not predict the natural reaction of citizens to reforms that reduce their welfare; they ignored a number of other costs of reform, including reducing the level of participation due to the exit of workers to the shadow sector. In addition, the goals of the reform were formulated not quite correctly. Besides, the analysis shows that, while continuing pension reforms, it is necessary to consider more consistently the requirements of gradualism and flexibility.