Expert: Raising the retirement age is still necessary, but it is not a panacea

Time for “good” reforms of the pension system in Belarus has been lost. “Good” reforms are possible on an upward trend in the demographic wave. This opinion was expressed by Lev Lvovskiy, the expert of the BEROC independent research center, during the discussion concerning pension reform in the framework of the Bank of Ideas project.

“Raising the retirement age is still necessary, but it is not a panacea. Just raising the retirement age is not enough”, said Lev Lvovsky.

According to the expert, in the long term, the transfer of one third of pension contributions to the funded system is beneficial and mathematically self-repaying. This means that if the country could borrow 40-50 billion rubles at 1.5% per annum, it would be easy to finance such a transition.

“And we would not have problems, pensions would increase and the national debt would not grow. But in the current situation, this is unrealistic. We are currently borrowing at a rate of about 6% per annum. And we see a very small number of countries that would like to lend us 50 billion rubles for 60-80 years”, the expert commented.

In this case, how to smooth out the Social Security Fund deficit? Lvovsky believes that the transition should be carried out gradually: the first generations that will participate in the funded system will contribute a smaller share of their pension contributions to the funded part.

“Only subsequent generations will reach 1/3. Other factors that are not taken into account in this model can both help and complicate the situation, for example, an increase in life expectancy. Now our model does not take into account that Belarusians will live longer. With an increase in life expectancy, the Social Security Fund deficit will be greater. Changes in the birth rate can strongly affect the deficit in the pension system. One of the factors to mitigate the deficit is the involvement of older people on the labour market. Migration can be an important factor that may both stabilizes and destabilizes our system”, said Lev Lvovsky.

The expert is sure that the realistic scenarios for improving the pension system depend on how expensive it is for Belarus to borrow money.

“Numerically, the transition to a funded pension pays off, however, if there is no opportunity to finance the Social Security Fund deficit now, then this means for us the opportunity to simply watch how it grows, or reduce pensions to future pensioners“.