What is wrong with the future indexation of pensions: the professor explained the features

Until the new year 2023, there are still three months, and the government, by tradition, has already announced the size of the indexation of pensions for this year. As the Ministry of Labor of the Russian Federation informs, from January 1, 2023, it will be 4.8%. In this regard, the Russians, who have recently become accustomed to double-digit price increases, probably have questions. After all, the increase in pensions under the law should not be lower than the official inflation rate. Which, in accordance with the government forecast, is expected to be 12.4% in annual terms. Nevertheless, the Ministry of Labor claims that the indexation of insurance and social pensions will exceed the inflation rate for 2022.

For non-working elderly people (there are about 35 million of them in Russia), from January 1 next year, pensions will be indexed by 4.8%, and the pension itself will increase on average by a little over a thousand rubles – up to 21,864 rubles. What could be considered a good result if it were not for the annual inflation rate forecast by the government: by the end of 2022, it will be 12.4%.

Here, it would seem, there is a clear mistake in the words of the Minister of Labor Anton Kotyakov. It turns out that annual inflation is 2.5 times higher than the same 4.8% by which Russians will raise pensions from the beginning of next year.

However, according to the Ministry of Labor, there is no mistake. The department proposes to take into account the fact that since June 1 this year in Russia all social payments have been increased by 10%: social benefits, “children’s”, the minimum wage, the living wage. Including a 10% increase in the pension of the unemployed. According to ministerial arithmetic, the government will eventually index payments by 14.8%, which is almost 2.5% higher than expected inflation.

– I haven’t forgotten anything, – Ivan Trofimovich, a veteran from Ryazhsk, Ryazan region, says. – The summer promotion helped the old people a lot, no words. My pension then grew by about 1,800 rubles a month. But, as I remember now, everything was presented as an unscheduled indexation of pensions. Everywhere they said that this was “Putin’s increase” due to rising food prices. As I understand it, we were compensated for the rise in prices for food and medicine that had already happened by that time. And now it turns out that from June 1, we sort of indexed in advance – for the whole of 2022.

Indeed, there is confusion here. We are used to the fact that from the beginning of the new year, non-working pensioners are subject to planned indexation in full for the previous year. Such is our tradition. That is, many old people, not without reason, believed that in January 2023 the government would raise their pension payment by the same 12.4%. But in fact, it turns out that the unscheduled indexation of June 2022 has become planned for the entire year – just ahead of the events, so to speak.

Although, we admit that the 10% “Putin’s increase” by June 1 has already been “eaten” by the rise in prices – after all, in March our ruble collapsed almost twice, and the price tags in stores changed in the same proportion …

So how correct is the position of the federal Ministry of Labor? In order not to guess on the coffee grounds, we turned to a specialist – Alexander Safonov, professor at the Financial University under the Government of the Russian Federation.

– Can you clarify the situation: what happened on June 1 this year – planned indexation or unscheduled “Putin’s increase”?

– That unscheduled indexation was a response to price increases in the first quarter of 2022. This is not “Putin’s increase”, as some believe, but indexation – in excess of the estimated level of inflation growth this year.

– So, the Ministry of Labor is right: is this indexation for 2022? And these 10% must be added to those that will be on January 1, 2023?

– Yes, since indexation for 2021 within 8.6% was carried out earlier – in January 2022. Thus, in the summer of this year, the government implemented the protection of pensioners from high price increases. Since inflation is expected to be 12.4% at the end of this year, the cumulative indexation within 14.8% will solve the problem of supporting the purchasing power of the elderly population.

– In your opinion, is this indexation of pensions enough to cover the expenses incurred in this, frankly, difficult year?

– Of course, there is a problem here. It is connected with the fact that we consider the general level of inflation. It includes not only the increase or decrease in prices for products, but also the services provided, industrial goods. Our citizens are primarily interested in food inflation, which, as a rule, goes ahead of schedule. If the real inflation rate at the end of the year turns out to be higher than what the government plans, it is possible that next year (as well as this summer) the government will decide on additional support for the population and pensioners. But for now, like this – plus 4.8% from January 1. In any case, the size of the pension cannot be lower than the subsistence level in the region.