Fuzzy Math

Even expert mathematicians would find it hard to calculate the value of individuals’ potential accumulative accounts at retirement. Start with the fact that government efforts to “reduce the tax burden on the economy” are far from complete, and the unified social tax – essential for pension deductions – is first in line for evisceration. The retirement age itself is also not set in stone. Today, men reach retirement age at 60, women at 55. But the demographic problem will likely eventually lead to an increase in retirement ages.

Then there is the “remaining life expectancy coefficient” (the average life expectancy after retirement). If one lives to retirement in Russia (the average male currently dies one year short of pension age), the remaining life expectancy is 19 years, or 228 months. If the coefficient is not changed (which is highly unlikely, as it has a tendency to change every year), then savings in individual accounts will, upon retirement, be divided into 228 equal payments.

If one lives longer than the actuarially-anticipated 228 months, payments will continue at the same level until one’s death, underwritten by those who lived shorter lives. It will not be possible to receive one’s accumulated portion as a lump sum or to shorten the period of payments (and thus increase them). The funds of those who do not live to their retirement will not go into a common pot, but will be passed on to their heirs.