Indexation of pensions to be based on pensioner’s subsistence minimum

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21 february 2019

Consistent with the proposal made by Russian President Vladimir Putin in his annual address to the Federal Assembly on February 20, the indexation of pensions and monthly benefits will be based on the pensioner’s substance minimum. This means that the indexation will apply not to the current amount of pensions and monthly social benefits, but to the overall payments to pensioners, which are increased to the amount of the regional pensioner’s subsistence minimum with the supplementary social benefit.

The current rules require that the indexation disregards the pensioner’s substance minimum. So, every indexation increases the amount of pension and proportionately reduces the supplementary social benefit, which keeps the pension at the subsistence minimum. As a result, payments received by some pensioners do not increase after the indexation.

The proposed amendments will first increase total payments to the pensioner to the subsistence minimum and provide the indexation of pension afterwards. Pensioners will receive the indexation in addition to the regional pensioner’s subsistence minimum, and the overall payments to pensioners will exceeded the pensioner’s subsistence minimum as a result of indexation of pensions and monthly social benefits of the current year.

The new rules will apply to the indexation of insurance pensions, which took place in January 2019. There is no need for pensioners to apply to the Russian Pension Fund; the process will be automatic.

The payment of supplementary social benefits in 2019-2024 will require an additional sum of 120 billion rubles. Twelve percent of non-working pensioners, including recipients of monthly social benefits, will receive larger supplementary payments.

 

Example: Today’s indexation of pensions (not based on the pensioner’s subsistence minimum)

A pension of 12,347 rubles is assigned. The regional pensioner’s subsistence minimum is 12,674 rubles, so a supplementary social benefit is assigned. As a result of the indexation of January 1, 2019, the pension grew 7.05%, or by 870 rubles to 13,217 rubles. In fact, the payments increased by 543 rubles instead of 870: 12,674 rubles + 543 rubles = 13,217 rubles, because the indexation first compensated for the difference between the pension and subsistence minimum and increased the pension after that.

 

Example: Indexation of pensions based on new rules (based on the pensioner’s substance minimum)

A pension of 12,347 rubles is assigned. The regional pensioner’s subsistence minimum is 12,674 rubles, so a supplementary social benefit of 327 rubles is assigned. As a result of the indexation of January 1, 2019, the pension grew 7.05%, or by 870 rubles to 13,217 rubles. By the new rules, the pensioner will receive 13,544 rubles, or 870 rubles above the regional pensioner’s subsistence minimum.