Budgetary and tax instruments for achieving the goals of the Strategy for the Long-term Development of the Pension System of the Russian Federation

Kovalev Vladislav Alekseevich ORCID: 0009-0000-2110-6400 Student; Chair of Public Finance; Financial University under the Government of the Russian Federation 49/2 Leningradsky Ave., Moscow, 125167, Russia kovalevdocs@mail.ru Other publications by this author

Introduction

The relevance of the research is determined by the need to achieve the goals and objectives of the Strategy for the Long-term Development of the Pension System of the Russian Federation until 2030, which, after its approval in 2012 (Decree of the Government of the Russian Federation dated December 25, 2012 No. 2524-r), currently defines the main directions and guidelines for the development of the national pension system. In accordance with it, in Russia, in conditions of long–term financial stability and a balanced pension system, it is necessary to ensure a replacement ratio (hereinafter referred to as the KZ) of up to 40% of lost earnings with a standard insurance record and average salary (hereinafter referred to as the NWF), the average old–age insurance pension is at least 2.5-3 times the pensioner's subsistence level (hereinafter referred to as the – PMP) and the development of a three–tier pension system with an acceptable pension level for the middle class as a result of their participation in non-governmental pension provision (hereinafter referred to as NGOs). It is of scientific interest to assess the degree to which the objectives set out in the Strategy have been fulfilled and to identify the factors that will influence it until 2030, with a view to developing measures to ensure its full implementation. Despite the fact that the Strategy does not define indicators of financial stability and balance of the pension system, as well as the development of private pension plans, we estimated them by the ratio of expenditures of the budget of the Social Fund of Russia (hereinafter referred to as SFR) for the payment of insurance pensions and revenues of the budget of the SFR in the form of insurance contributions for compulsory pension insurance (hereinafter referred to as OPS), the dynamics of the main indicators of OPS.

Assessment of the achievement of the objectives of the Strategy for the Long-term Development of the Pension System of the Russian Federation

During the 11 years of the Strategy's implementation, the degree of achievement of its results has been repeatedly analyzed in the scientific literature on various dates by the authors: Balynin I. V. ^[1], Vinogradov N. V. ^[2], Dorofeev M. L. ^[3], Kozlov P. A. ^[4], Kravchenko E. V., Sukhoveeva A. A. ^[5], Sedova M. L. ^[6]. Most often, the following indicators of the Strategy were the objects of research: the ratio of the average size of the insurance pension to the pension fund, the replacement coefficient of the insurance pension for lost earnings, and the development of a three-tier pension system. Its cumulative component, and financial stability. The changes made to pension provision during the implementation of the Strategy were discussed in the report of the Higher School of Economics ^[7].

Considering the indicators determined by the size of the insurance pension, we note the conditions of the analysis: (1) the amount of the insurance pension should not be taken into account, taking into account the federal or regional social supplement, since it does not reflect the effectiveness of the pension system and distorts the result ^[8], (2) for their calculation, it is possible to use the actual amount of the insurance pension according to statistical data for example, in the current financial year, or to estimate the amount of pension rights and the amount of an insurance pension, subject to the start of the formation of pension rights of a conditional insured person on the date of the study, taking into account all changes in the parameters of the OPS and legislation and the immutability of other factors ("what amount of insurance pension will be at retirement, if you start forming it on general terms today").

The results of our calculations (Table 1) confirm the researchers' conclusions about the failure to achieve the target value of the ratio of the average size of the old–age insurance pension to the pension fund in the period 2016-2023. In 2024, taking into account the projected average size of the old-age insurance pension, the ratio is expected to be 1.75, the maximum value of 1.76 was reached in 2023. In the planned period of 2025-2026, according to calculations according to the Accounts Chamber of the Russian Federation, the value will decrease annually, including due to the growth of higher rates of pension benefits than the size of the average insurance pension (Table 2).

Table 1 – The ratio of the average size of the old-age insurance pension to the pension fund for 2016-2024

Source: compiled by the author according to Rosstat ^[9] and the Accounts Chamber of the Russian Federation ^[10]. Note: The pension plan for 2022 and the average size of the insurance pension for 2023 are indicated on an annual basis.

The gross salary, which we use to estimate the salary required by the Strategy, taking into account the average annual accrued salary in the Russian Federation, also does not reach the target value, ranging from 0.28 to 0.35 (Figure 1). In the period 2024-2025, it is projected to decrease annually by an average of 2.06% compared to last year.

Table 2 – The ratio of the average size of the old-age insurance pension to the pension fund in 2025-2026

Source: compiled by the author according to the Accounts Chamber of the Russian Federation ^[10].

In addition, Balynin I.V. assessed the achievement of the Strategy's indicators not by the size of the assigned (accrued) insurance pension, but by modeling the amount of pension rights: in 2021-2023, with an experience of 30 years and the size of an old-age insurance pension of 23.83, 23.5 and 22.6 thousand rubles, respectively ^[1], the ratio of its size to the pension fund was according to our calculations, using more up-to-date data on PMT in 2022 and 2023, 2.38 and 2.06 and 1.83 in 2021-2023, respectively, which does not meet the objectives of the Strategy. With the above-mentioned amount of pension rights, the KZ, according to our calculations, amounted to 0.42, 0.36 and 0.31 in 2021-2023. Despite the potential achievement of the required minimum wage in 2022, an increase in the average accrued salary with an increase rate of 28.24% in 2023 by 2021 led to a decrease in the minimum wage in the absence of the same rapid growth in the insurance pension (i.e., an increase in the cost of the individual pension coefficient (hereinafter referred to as the IPC) or the rate of formation of the necessary amount of pension rights for KZ of 0.4).

Figure 1 – Gross load dynamics

Source: calculated by the author according to data from Rosstat ^[9] and the Accounts Chamber of the Russian Federation ^[10].

The formulation of targets based on the amount of insurance pensions does not allow us to accurately determine the categories of insured persons whose level of pension provision should reach the level specified in the Strategy. Self–employed citizens and individual entrepreneurs (hereinafter referred to as sole proprietors) are also included in the number of persons insured in the OPS. The strategy was adopted earlier than self-employed citizens and sole proprietors were differentiated (Federal Law No. 199-FZ dated July 26, 2017 "On Amendments to Articles 2 and 23 of Part One of the Civil Code of the Russian Federation") and a special tax regime for self-employed citizens "Occupational tax" was introduced: it defines self-employed and sole proprietors are equivalent.

One of the measures to improve the tariff policy is to change the benefits for the payment of insurance premiums (hereinafter referred to as CB): it is proposed that after the expiration of the preferences, further support measures will not affect the OPS system. According to the list of tax expenditures at the federal level, as of November 13, 2023, there are 14 benefits (compared to 11 as of September 23, 2019 ^[11]) for the payment of VAT on OPS, 13 of them have a stimulating function, 10 of them are provided as part of the implementation of state programs ^[12]. According to the information from the database on tax benefits and preferences of the Ministry of Finance of the Russian Federation, the number of tax exemptions and their reduced tariffs as of December 20, 2018 reached 34, with a validity period of 6 to 14 years (16 benefits with unlimited validity) and termination in 2019-2028 ^[13]. A selective comparison of benefits with expiration dates in 2019-2024 with the provisions of the Tax Code of the Russian Federation showed that the provisions of the Strategy are not fully implemented, since, for example, tax benefits for an IT company were extended after the stipulated period of their validity (until January 1, 2024). At the same time, it is predicted that the share of inter–budget transfers (hereinafter referred to as MBT) from the federal budget will decrease to compensate for the shortfall in expenditures of the SFR budget in the total amount of its income as part of the SV for OPS in terms of the formation of rights to an insurance pension to 2.35% in 2026 (Figure – 2), which is not consistent with the calculation of the shortfall in revenues of the SFR budget for The planning period is 2024-2025 (table 3). The calculation of the shortfall in revenues of the SFR budget is not presented in the accompanying materials to the draft law on its budget for the 2024 regular year and the planning period of 2025-2026 ^[14].

Figure 2 – Dynamics of the volume of MBT from the federal budget to compensate for the shortfall in revenues of the budget of the SFR

Source: calculated by the author. Inter–budget transfers from the federal budget for 2014-2022 are reflected according to data from the Federal Treasury on the execution of the Federal budget ^[15], for 2023 - according to Federal Law No. 466-FZ of December 5, 2022 "On the Federal Budget for 2023 and for the planning period of 2024 and 2025", for 2024 – according to the Federal Law of November 27, 2023 No. 540-FZ "On the Federal Budget for 2024 and for the planning period of 2025 and 2026". The amount of funds received for OPS in terms of insurance pensions for 2014-2022 was obtained from the budget performance reports of the Pension Fund of Russia (hereinafter referred to as the FIU), for 2023-2026 – according to the explanatory note to the draft budget of the FIU in 2023 ^[16] and 2024 ^[14].

In the period 2023-2025, it was planned that the shortfall in SFR budget revenues from reduced CB tariffs for Russian IT companies and for organizations and sole proprietors that are small and medium-sized enterprises (hereinafter referred to as SMEs), in terms of payments in favor of an individual, defined as exceeding the minimum wage, would total more than 80% of all outstanding expenses or 632.99 billion rubles in 2025.

Table 3 – Shortfall in revenues of the SFR budget in 2023 and the planned period of 2024-2025

Source: compiled according to the author's calculations based on data from the explanatory note to the draft Federal Law "On the Budget of the Pension and Social Insurance Fund of the Russian Federation for 2023 and for the planning period of 2024 and 2025" ^[16]. Notes: VD is a loss of income.

The assessment of ensuring the balance and current financial stability of the pension system is closely related to the assessment of the possibility of achieving the goals of the Strategy in 2030 in the absence of changes in pension provision parameters and all other things being equal. We agree with Sedova M.L., who argues that the mere existence of a transfer to pension funds from the budget of the central government is not the main criterion for the stability of the pension system ^[17] and Balynin I.V., who writes that the OPS system is a key element in the analysis of the balance and stability of the pension system ^[8].

The expenses of the SFR budget for the payment of insurance pensions (with the exception of shipping costs) have never been fully covered by budget revenues from CB revenues for OPS during the period 2014-2026 (Figure 3), while the level of coverage increased from 69.97% in 2014 to 91.19%, planned in 2026 (Figure 4), which characterizes a high but exceptionally current balance.

Figure 3 – Dynamics of MBT from the federal budget, CB for OPS and expenses for payment of an insurance pension

Source: developed by the author. Data up to 2021 were obtained from the reports of the Federal Treasury on the execution of the federal budget and the budget of the FIU/SFR ^[15], for 2023-2026 – according to the federal laws on the federal budget and the budget of the SFR for the corresponding next year and planning period.

On average, during the analyzed period, the amount of income from CB on OPS showed a greater increase (9.16%) than the amount of expenses for the payment of an insurance pension (6.64%). At the same time, starting in 2024, it is planned that there will be no MBT from the federal budget for OPS (not including MBT for valorization and income reimbursement), and in the planned period of 2025-2026, a budget surplus of the SFR is expected in terms of OPS not related to pension savings. However, to cover the cost of paying an insurance pension exclusively with incoming insurance premiums in 2024-2026, 1189.66, 1176.96 and 955.25 billion rubles are required, respectively, and to eliminate the need for an office from the federal budget (excluding compensation for short–term expenses) - more than 930 billion rubles annually in 2024-2026.

This trend is explained by a slowdown in the growth of the number of pensioners receiving an old–age insurance pension (reasons: raising the retirement age, the required number of years of insurance experience, high mortality among the elderly in 2020) and an increase in the wage fund in the Russian Federation (hereinafter referred to as the FTF), the size of the NWF, and the marginal base for taxation of SV on OPS (starting from 2023– the unified marginal base) at a tariff of 22% is higher than the increase in the cost of the IPC and the amount of the fixed old–age pension payment (Figure 5), which means a higher increase in SFR budget revenues compared to the pension rights of insured persons. So, in the period 2018-2026, the marginal base is growing faster by 2.62 percentage points compared with the growth of the fixed payment, by 5.16 – the cost of the IPC and by 13.43 – the number of pensioners, the FOT is growing faster by 3.01, 2.55 and 10.82 percentage points, respectively.

Figure 4 – The degree of coverage of the expenses of the SFR budget for the payment of insurance pensions by insurance premiums for OPS

Source: developed by the author. Data up to 2021 were obtained from reports of the Federal Treasury on the execution of the federal budget and the budget of the FIU/SFR ^[15], for 2023-2026 – according to federal laws on the federal budget and the budget of the SFR for the corresponding next year and planning period.

Thus, the number of pensioners receiving an old-age insurance pension increased by only 0.93% in 2023 compared to 2014. Taking into account the forecast data for 2025-2026, for the period 2015-2026, the cost of the IPC increases by an average of 6.98%, the amount of the fixed payment (FI) – by 6.58%, when the FOT for 2018-2026 increases by an average of 10%, the marginal base for taxation of CB (PB) – by 12.34%, NWF – 11.34%.

Figure 5 – Dynamics of the increase in the parameters of pension provision and wage fund

Source: constructed by the author according to the data of the Unified Interdepartmental Information and Statistical System ^[18]. The size of the FOT in 2023-2026 is given according to the Accounting Chamber of the Russian Federation ^[10].

The achievement of the Strategy's goals by 2030 will be influenced by the length of life in the disabled (Figure – 6). According to Rosstat estimates, in 2022 by 2013, it increased by 6.23% (almost one year) to 16.71 years and by 2.84% to 26.08 years for men and women, respectively ^[19]). According to the UN estimates, the life expectancy of men and women over 65 in Russia in 2030 will be 14.5 and 18.8 years, respectively ^[20].

In addition, the analysis conducted by the author showed that the demographic burden coefficient (excluding the population under the age of able-bodied) will decrease from 429.61 in 2023 to, according to Rosstat, 337-380 in 2030 (while increasing to 461-514 in 2046) ^[21]. The retirement age will continue to be raised until 2028, and the minimum number of IPCs to qualify for an insurance pension will be increased until 2025.

Figure 6 – Parameters affecting the level of pension provision in the distributive part of the OPS

Source: developed by the author. Note: PB is the marginal base for taxation of SV, and FI is a fixed payment for an insurance pension.

Taking into account the task announced by the President of the Russian Federation on the transition to a "high-wage economy" in the next decade ^[22], achieving the goals of the Strategy for the required replacement rate and the ratio of the size of the insurance pension to the pension fund look realistic. It should be noted that the impact of the distribution of the tax burden towards high-income citizens, the task set by the President of the Russian Federation to the Government of the Russian Federation in his last Message to the Federal Assembly of the Russian Federation on 02/29/2024, has yet to be assessed on shadow employment and underestimation of income used for calculating insurance premiums, which are important factors in balancing the pension system and the achieved level of pension provision ^[23].

Proposals on the use of budgetary and tax instruments to achieve the objectives of the Strategy for the Long-term Development of the Pension System of the Russian Federation

In order to ensure that the Strategy's goals are achieved by 2030, we need to develop recommendations to ensure socially acceptable pension payments and ensure the balance and long-term financial stability of the pension system.

We agree with the need to respect gender equality in setting the retirement age, the expediency of which has been described in the scientific literature ^[24]. It is advisable to eliminate sexual discrimination simultaneously with solving the problem of the insignificant level of pension rights formed during socially significant periods in terms of parental leave up to one and a half years. The current procedure assumes the formation of 1.8 CPI per year for caring for the first child, 3.6 for the second, and 5.6 for the third and fourth, or, in monetary terms, 239.49, 478.98 and 745.08 rubles, respectively. Given that more than half of women do not assume that their husband will take parental leave at the birth of a child ^[25], there is clearly a problem of one sex losing pension rights. Taking into account the need to increase the birth rate and stimulate childbearing, it is advisable from 2025 to ensure the formation of pension rights for the care of the fifth and subsequent children, as well as to establish the procedure for the formation of pension rights for a socially significant period in proportion to the average earnings calculated for the two previous calendar years, which is directly used to calculate the amount of child care benefits, or in proportion to the length of the vacation, based on the maximum number of 10 IPCs per year. Taking into account the number of recipients of such benefits in 2022 in 1.7 million families, the amount of additional pension rights in monetary terms will amount to ~ 2.26 billion rubles. This amount of shortfall in budget revenues of the SFR will be completely offset by eliminating gender discrimination in setting the retirement age. According to Rosstat, as of January 1, 2022, the number of women aged 60-64 years was 6.01 million people. As of January 1, 2023, the number of women per 1,000 men is increasing in each age group, starting at the age of 20, and the 60-64-year-old group reaches 1,347 women per 1,000 men ^[26]. According to the author, the savings of the budget of the SFR from raising the retirement age for women exceed 1.6 trillion rubles annually with a one–time increase or from 314.32 billion rubles to 359.83 billion rubles per year with an annual increase in the retirement age by 1 year (Table - 4).

Table 4 – Effects of the implementation of the author's proposals to improve the distributive component of the pension system

Source: developed by the author.

In the Strategy, as part of the reform of the institute of early pensions, it was supposed to provide an opportunity for employers with jobs with special working conditions to organize a system of voluntary pension insurance and NGOs, the implementation of which would exempt employers from paying SV at additional tariffs, which were a source of financing for early retirement of employees employed in industries with special conditions. labor. Currently, such a mechanism has not been created: an additional insurance premium rate is set at 0% to 9%, depending on the type of work and class of working conditions, without the possibility of compensation for exemption from the obligation to pay for it by creating a corporate social security system. The author's proposal is to apply to employers (policyholders) who employ new employees in jobs with special working conditions, for whose benefit additional tariffs are paid, the tool imputed to NGOs (starting from calendar year N or the year of birth of the employee Y). Such a tool, according to the author, should oblige policyholders to make pension contributions in favor of such employees at fixed rates for the period of their work. At the same time, it is assumed that the provision on early appointment of insurance pensions will not apply to new employees, and employees' NGOs will not provide for the possibility of receiving a lump sum payment or paying a pension for less than a certain period, for example, 10 years. In turn, the additional CB tariffs in the author's proposal will be replaced by NGO contributions. This approach will allow: (1) to ensure the appointment of a non-state pension earlier than the generally established period (by 5 years) and preserve the preferences of employees for early retirement; (2) to ensure the formation of rights to an NGO pension in addition to insurance, which means to increase the level of pension provision in conditions of reducing the ability of OPS to provide a higher replacement rate; (3) in the long term, completely eliminate early retirement provision in the distribution system, which will increase its financial stability; (4) create incentives for the above–mentioned employees to make voluntary additional NGO contributions in their favor and develop corporate pension provision systems; (5) contribute to overcoming citizens' distrust of non-governmental pension funds (hereinafter referred to as NPFs). Taking into account the results of using such a tool in the OECD countries, indicating the current expansion of coverage of private pension schemes ^{[27] [28]}, the author suggests expanding the use of imputed NGOs, for example, by replacing them with reduced CB tariffs as part of the provision of tax benefits after the expiration of the relevant preferences. On the one hand, this will preserve the stimulating function of tax expenditures of the budgets of the budgetary system of the Russian Federation by establishing lower rates of pension contributions within the framework of the imputed NGO compared with the standard OPS, on the other hand, it will replace the source of financial support for payments to citizens with pension contributions from the depositor (Table – 5).

Table 5 – Effects of the implementation of the author's proposals for the development of a three-tier pension system

Source: compiled by the author.

In order to further encourage employers to participate in private funded pension plans, it is advisable to increase the share of employers' NGO contributions in favor of the employee, which is taken into account, together with voluntary contributions to pension savings, long-term employee life insurance and voluntary pension insurance, as labor costs when calculating the corporate income tax base, with 12% to a higher value in the case of contributions in favor of employees whose wages do not exceed 2 NWFPs in the Russian Federation.

Given the insignificance of the NGO pension: by the end of 2022, for an individual NGO – 5.4 thousand rubles per month (35.3% of the minimum wage from July 1, 2022), for a corporate one – 4.1 thousand rubles per month ^[29] (26.8% of the minimum wage), and the number of NGO participants, including those at the stage of payments (1.48 million people in the Russian Federation according to the results of the third quarter of 2023 ^[30]), it is advisable to consider the possibility of excluding from the personal income tax base the amount of non-state pension, which is formed by contributions from employers and persons not related to close relatives. Our argument is as follows: (1) the taxation of pensions, the rights to which are formed at the expense of the employer, makes it difficult for the development of corporate NGOs and employers' participation in it, (2) the collection of expert opinions conducted by the NAPF indicates that the abolition of personal income tax is assessed as a growth factor for individual NGOs with a strong influence by 63% of the experts surveyed the pension market, with an average impact of 38% of the expert, (3) such taxation has an unequal impact on the revenues of the budgets of the subjects of the Russian Federation and municipalities and on the participants themselves. The amount of personal income tax levied on the average pension for a corporate NGO is 3.4% of the minimum wage in 2022, which is disproportionately small for considering it as a significant and sustainable source of income for regional and local budgets and a lot for the elderly and NGO participants. According to our estimates, the annual amount of tax revenues from the mobilization of personal income tax on non-state pensions does not exceed 12.5 billion rubles. or 0.0019% of the personal income tax credited in 2023 to the consolidated budgets of the subjects of the Russian Federation ^[31], which, taking into account the distribution of participants and the annual amount for all subjects of the Russian Federation, will allow for the exclusion of all NGO pensions from taxation without threatening to reduce the financial stability of the budgets of the subjects of the Russian Federation and municipalities, or significant impact on the dynamics of their budget revenues. The specific parameters of the author's proposals can be adjusted, for example, it is possible: (1) exemption from taxation of payments under NGO contracts valid for more than N years ^[32], (2) not excluding such NGO pensions from the tax base, but reducing the personal income tax rate, (3) establishing a progressive scale of taxation for non-governmental pensions or excluding when a participant reaches a certain age, for example, 75-80 years, at which the risk of poverty increases.

Conclusion

The results of our assessment of the actual data and modeling of the volume of pension rights, at the beginning of their formation in 2024, indicate that the Strategy's goals regarding the size of the insurance pension were not achieved. An increase in the marginal base for taxation of SV above the rate of inflation and the growth rate of FT, accompanied by an increase in the share of wages in GDP and a slowdown in the number of pensioners, will have the most significant impact on ensuring the size of the insurance pension in the target amount by 2030. The implementation of the Strategy did not ensure a reduction in preferences for the payment of CB, and the target relative values for the size of the insurance pension, as well as full coverage of the cost of paying an insurance pension through insurance contributions, were not achieved, however, stricter requirements for obtaining rights to an insurance pension, manual indexing, rapid growth of the marginal base for taxation of CB and the payment fund labor and projected demographic values for the period up to 2030 allow us to conclude that the goal of ensuring the necessary labor protection is achievable, while maintaining the need for partial budget financing for the payment of insurance pensions. We also conclude that the OPS system has reserves for increasing its financial stability in the medium term.

As part of the application of budgetary and tax instruments to achieve the goals of the Strategy for the Long-term Development of the Pension System of the Russian Federation, we have proposed: ensuring gender equality in setting the retirement age, increasing the amount of pension rights formed during child care, using the tool imputed to NGOs in relation to employers providing jobs with special working conditions, increasing the share of organizations' expenses on making pension contributions for the benefit of employees, which are taken into account when calculating corporate income tax. The author has developed recommendations for exemption from personal income tax of NGO pensions formed by contributions from third parties, or a reduction in the tax rate.

Thanks

The article was prepared under the scientific supervision of Balynin Igor Viktorovich, Candidate of Economics, Associate Professor, Associate Professor Department of Public Finance, Faculty of Finance, Financial University under the Government of the Russian Federation.