Russian Social Welfare System

& its Evolution

RUSSIAN ECONOMY
JUNE,7 2023)
E L E N A M AT V E E VA

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 Overview of the Welfare System
Social welfare - services designed to protect citizens from the economic risks and insecurities of life.
Financing of government social welfare programs comes from public revenue.
The main government agency that deals with social welfare is the federal Ministry of Labor and Social Protection (MLSP).
• Federal MLSP Federal Ministry of Health,
• Federal Ministry of Education,
• Federal Social Security Fund,
• Federal Medical Insurance Fund,
• Pension Fund of Russian Federation,
• Regional Ministries of Social Protection (MSP) in the subjects of the RF,
• Regional Health ministries,
• Ministries of Education Regional Labor departments.

Parts of the funds for social programs are financed by the subjects of the Russian Federation – its regions
(such as olsast, krai, and republic) – within their powers and social obligations.

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 Overview of the Welfare System
Welfare system in Russia includes such social programs as:
1. State-funded pensions;
2. Compulsory medical insurance;
3. Compulsory labor insurance and provision of unemployment benefits;
4. Social services (services provided by nursing homes, boarding schools, night stay homes, etc.);
5. Social security programs (for low income people, elderly, disabled people, etc.);
6. Protection of the family and children (monetary and in-kind support of families with children, young fami-
lies, families with disabled children, etc.);
7. Other programs (financial and in-kind support of certain categories of people).
In-kind support – services and goods provided for those in need

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 Overview of the Welfare System
Early 2000s to 2014 - social spending was steadily increasing both in absolute terms and in relation to its
share in the country’s budget.
By 2015 this tendency has been upset by plummeting oil and gas prices.
The share of social spending in consolidated budget has dropped for the first time since early 2000s.
In technical terms expenses for provision of pensions, medical insurance benefits and unemployment bene-
fits are administered by special agencies that are not parts of the government – Pension Fund of Russian
Federation, Federal Medical Insurance Fund, and Federal Social Security Fund respectively.
Nevertheless, Russian Ministry of Finance includes those expenses in its budget statistics putting them in
the “social policy” category.
Within the period of the last 10 years expenditure on provision of pensions accounted for 2/3 to 4/4 of the
consolidated budget for social spending depending on the year.

World Bank, 2016 4

Social Welfare System Evolution Timeline
1917 - begins the formation of a modern social security system in Russia
Establishment of social insurance for workers, social benefits for disabled soldiers and their fam-
ily members, health care system for workers, including health and safety insurance at work.
1922 - the provision of social security benefits was based mainly on the ability to perform work
duties. Established pensions for the loss of a breadwinner for workers' families, financial support
in case of temporary disability, maternity support. Health care system was improved by the de-
velopment of sanatorium system for workers and children.
1936 - the adoption of the 1936 Constitution of the Soviet Union - the right to financial benefits
due to old age, illness, and disability (article 120).
After 1937, the healthcare system fully funded by the state.

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Focus on educat-
ing the populace

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Social Welfare System Evolution Time-
line
1945- the formation of new social security centered on social care and benefits for injured and
retired soldiers.
1970s and 80s - social benefits for disabled people such as free use of public transport and in-
creased the amount of money spent on children's meals in kindergartens and orphanages, the
minimum pension rates for workers, employees were set.
1977 - the new Constitution of the USSR affirmed the equality of rights of women and men (arti-
cle 35), the right to health (article 42), maternity and family support (articles 43 and 53)
Perestroika – solving the legislation vacuum. The legislative base was expanded and modernized.
Mid 1980s - third sector organizations were incorporated into the social security system as social
services providers.

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Social Welfare System Evolution Time-
line
After 1991 - the decentralization of the social security system began with the formation of a
three-tier government (federal government, regional government, local self-government).
The right of citizens to social pensions was codified in law. The pension calculation system
changed and special conditions for pension appointment for certain categories of employees,
such as military personnel, were established by a separate law, as well as financial benefits for
the families of deceased servicemen, unemployment benefits were codified in the legislation.
1993 - Constitution of the Russian Federation declared the RF social state (article 3) and pro-
claimed the duty of the State to ensure the social protection of its citizens (article 39)
2002 - a portion of the mandatory pension payments of employers is invested in pension funds
whose proceeds are earmarked for the pensions of workers born after 1967.
Between 2002 and 2004, average monthly benefits increased from US$45 to US$58.

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Social Welfare System Evolution Time-
line
2005 - a major welfare reform program - a very unpopular monetization of privileges such as free trans-
portation and medicine. Subsequently, monetization was made optional, and in 2006 less than half of recip-
ients accepted cash compensation.
2006 - about 52 million Russians were receiving some form of welfare.
2006 - officially 15% of the population fell below the minimum subsistence level. However, independent es-
timates were over 25%, and the incomes of 80% of Russians reportedly were falling. The geographical distri-
bution of poverty was very uneven: from was below 10 % to over 70%.
2006 - Minister of Economics Gref called for a fundamental overhaul of Russia’s state welfare system. Most
welfare agencies at the local or regional rather than the national level suffer from inadequate funding and
corruption.
2006 - the government doubled child support payments to US$55 per month and offered a one-time pay-
ment of US$9,200 to women who had a second child.

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 Social Welfare System Evolution Time-
line
From 2017, the Russian tax authorities – instead of social funds – will be responsible for administering most
social security payments. Russian social security contribution rates in 2017 are in the following categories:
pension contributions – 22% of an employee’s salary, up to a maximum of RUB 876,000, plus 10% of any ex-
cess salary above this;
social insurance contributions – 2.9% of an employee’s salary, up to a maximum or RUB 755,000, or 1.8% for
foreigners temporarily staying in Russia;
medical insurance – 5.1–5.9% of salary.
In addition, mandatory accident insurance contributions are paid at rates ranging from 0.2–8.5% of an em-
ployee’s salary, depending on the level of assessed risk of the employee’s occupation. This pays separately
to the above social security contributions, and still administered by the social funds.

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 Grey peril & Welfare attitudes in Russia
Most countries are confronted with an ageing society - ‘grey peril’: the more old people there are in the
population, the higher is their political clout, leading to an increase in social benefits and services that are
directed to the elderly, such as pensions or health care.
While in Europe people think that it is the government’s responsibility to provide both a decent standard of
living for the old, as well as childcare services for working parents – However in Russia, support for the el-
derly is considerably stronger than support for childcare.(p.8)
Russians appear to favor universal programs a universal basic income (everyone would be entitled to a ba-
sic income) & old-age pensions (everyone will get older).
They are considerably less supportive of programs directed at specific needy people, such as the unem-
ployed or working parents, while also being particularly restrictive of immigrants’ social rights.
Russians are also skeptical about the capacities of their welfare system, as evidenced by the low satisfac-
tion with the living standards of the unemployed and the achieved level of poverty reduction.

Ochsner, Michael, Laura Ravazzini, Dimitri Gugushvili, Marcel Fink, Peter Grand, Orsolya Lelkes, and Wim van Oorschot. Russian versus European welfare attitudes: Evidence from Round 8 of the
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European Social Survey. European Social Survey, 2018.
 Low birthrates and its effect on pension systems
• Low births and ageing population will affect Korean pension system
• The pension fund will start running a deficit from 2041 before it completely runs out in 2055
• Working-age populace was 71.7% of the population in 2021, that number will decline to 51.3 %
by 2050
• The number people older than 65 will rise from 8.5mn in 2021 to 17.2mn in 2040, potentially
43.9% of the population by 2050
• In 2018, the country reported more deaths than births for the first time
• The fertility rate dropped to 0.81 — the lowest in the world
• Experts agree South Korean government not doing enough to address the looming pension crisis due to
the public resistance against reform

Davies, C., Song, J., South Korea’s pension fund forecast to run out in 2055 as demographic crisis hits. Financial Times. January 27, 2023.
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 Overview of Pension Policies in Korea, Russia, &
OECD
• OECD average Korea Russia

64.2 years 62 years 61.5 for men

Retirement age in Denmark - 74 years 65 from 2034 Putin’s bill in 2021
Statutory retirement-60 65 m/ 63 w

Eligibility 0 – 15 years ~10 years 10 years 9 years (15 in 2024)

% of national GDP 9.2% 4% 7.7%
Contribution rate 15% (33% Italy) 9% split equally 22%

Contribution age Mandatory until the 18-60 (after 60 if under Until the retirement
retirement age 10 years of contr.)

OECD Review of Pension Systems: Korea, https://www.oecd-ilibrary.org/sites/ec6fc022-en/index.html?itemId=/content/component/ec6fc022-en 13

OECD Review of Pension Systems: Russian Federation, https://www.oecd.org/els/public-pensions/PAG2019-country-profile-Russian-Federation.pdf
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Davies, C., Song, J., South Korea’s pension fund forecast to run out in 2055 as demographic crisis hits. Financial Times. January 27, 2023.
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