VZCZCXYZ0133
RR RUEHWEB

DE RUEHSK #0664/01 1721457
ZNR UUUUU ZZH
R 211457Z JUN 06
FM AMEMBASSY MINSK
TO RUEHC/SECSTATE WASHDC 4587
INFO RUCNOSC/ORGANIZATION FOR SECURITY COOPERATION IN EUROPE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK

UNCLAS MINSK 000664 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EFIN SOCI BO
SUBJECT: Belarus Faces Pension Crisis 
 
¶1. Summary: On May 18, Econoff met with the head of the Ministry of 
Labor's pension office, and on May 30 attended a conference where 
several GOB officials described an upcoming pension crisis. 
Belarus has 2.6 million pensioners, 27% of the population, and this 
number will grow in coming years.  The country only has 1.667 
workers per retiree.  Because of low retirement ages and an 
extensive system of social payments, around 65% of the population 
receives some sort of payment from the GOB, totaling 35% of the 
budget.  To help bring these numbers under control, and to 
encourage people to work longer, the GOB is planning to introduce 
an accumulative pension system in the near future.  End summary. 
 
 
Crisis Coming 
------------- 
 
¶2. As far back as 2004 the GOB admitted that it faces a pension 
crisis, and must reform its state-controlled retirement system. 
There are now some 2.6 million pensioners, making up 27% percent of 
the Belarusian population.  Low retirement ages contribute to this 
problem: Belarusian men retire at 60 and women at 55.  The GOB also 
allows certain categories of workers, such as those who work in 
dangerous or unhealthy occupations, to retire earlier.  Since 1990 
the number of early retirees who qualify for a pension has tripled, 
and now represents 24% of all retirees.  The GOB expects this 
problem to worsen; by 2025 the GOB predicts that 32% of the 
population will be pensioners. 
 
¶3. According to the Ministry of Economics, in 1990 there were 2.185 
workers for every pensioner.  By 2005 that ratio had dropped to 
1.667 workers per pensioner.  Not only has the number of pensioners 
increased as Belarus' post-war baby boomers retire, but the number 
of Belarusians working has dropped from 5.8 million in 1990 to 4.3 
million today.  This ratio is expected to worsen, as the birth rate 
in Belarus has fallen by one-third since 1990. 
 
¶4. Belarus has a distributive pension system with fixed payments. 
All residents of Belarus qualify for either a labor or social 
pension, regardless of citizenship.  Those who work for at least 
five years receive labor pensions, whose amount is roughly 
determined by length of time worked and salary earned, although 
variations between the lowest and highest amounts is limited. 
Valentine Koroleva, head of the Pension Department at the Ministry 
of Labor, explained that low earning workers' pensions are 
equivalent to 60-80% of their salaries, while higher earning 
workers only get 15-20% of their salaries as a pension.  All others 
receive social pensions, which are generally lower than labor 
pensions. 
 
¶5. As of May 2006, the average Belarusian pension was USD 115 per 
month, equaling 43% of the average monthly salary.  Regardless of 
income, workers pay one percent of their salary and employers pay 
29% of payroll to the pension fund.  The GOB has steadily raised 
pensions for the past few years; so far pensions have risen 25% in 
2006 alone [Note: March presidential elections probably contributed 
to this sharp increase.].  Koroleva said that even with these 
increases, many pensioners are not satisfied with what they 
receive.  In fact, 21% of pensioners work, as Koroleva admitted 
they cannot survive on their pensions.  Pensioners who work get 
their salaries plus 20% of their pension. 
 
 
Extensive Social Payments = Fiscal Woes 
--------------------------------------- 
 
¶6. Old age pensioners (including those who retiree early because of 
an unhealthy occupation) account for 85% of all pensioners. 
Invalids account for the other 15% of pensioners.  In addition to 
paying pensions, the GOB provides social payments to citizens based 
on a number of criteria, such as: illness or temporary inability to 
work, pregnancy and birth, mothers caring for a child until the age 
of three, one paid day off per month for mothers caring for an 
invalid child, loss of a family's breadwinner, war veterans, and a 
death benefit paid when a family member dies.  Currently 6.5 
million Belarusians receive some sort of pension or social payment, 
out of a total population of 9.8 million.  This is down from 7.5 
million who received such payments in 2001.  Koroleva said there 
were no plans to reduce the number of categories of people who 
qualify for social payments. 
 
¶7. According to Natalya Shavlovskaya, Executive Director of the 
GOB's Social Security Fund, in 2005 8.9% of GDP went to paying 
pensions, with another 10.9% of GDP going to providing various 
social payments.  Both categories have both been steadily rising 
since 2001.  The 2006 budget allocated BYR 9.33 trillion (USD 4.34 
billion), 35% of budget expenditures, to pensions and social 
payments.  Old age pensions account for BYR 5.7 trillion (USD 2.65 
billion) of that amount.  [Note: In contrast, the GOB will spend 
BYR 1.74 trillion (USD 809 million) on education and health care 
combined.] 
 
 
Private Pension System Very Small 
--------------------------------- 
 
¶8. Viktor Homyarchuk, President of the Belarusian Insurance Union, 
explained that there is no private pension insurance in Belarus, it 
has all been nationalized by the GOB.  There are some very small 
private pension funds, which workers can use for additional, 
voluntary savings.  Their total value was USD 8.92 million in 2005, 
up from USD 0.48 million in 2000.  Homyarchuk said his union is 
lobbying the government to allow more private pension funds. 
 
 
Plans to Reform 
--------------- 
 
¶9. Koroleva explained the GOB is working on draft legislation to 
transition to an accumulation pension system.  Belarus has studied 
the experiences of Ukraine and Kazakhstan in similar pension 
reform.  The GOB hopes to start enrolling younger workers in such a 
system as early as 2008.  Under the proposed system, workers would 
pay more into a pension fund and employers would pay less.  Workers 
will be allowed to make additional, voluntary payments.  The amount 
of pension a worker receives would then depend to a much greater 
degree on the amount paid in and the length of time worked.  She 
stated that the GOB would not likely raise retirement ages, but 
that the government hoped to encourage people to work longer if it 
offers the possibility of larger pensions.  Ludmila Telegina, head 
of the Ministry of Economic's Social Protection unit, estimated the 
GOB would need to spend around three percent of GDP (about USD 900 
million in 2005) to introduce an accumulation pension system for 
younger workers while not cutting benefits for retirees and older 
workers.  She added that the GOB would like to introduce such a 
system soon, but is hampered by the lack of long-term investment 
possibilities in Belarus where the GOB could invest the money being 
paid in by workers. 
 
 
Comment 
------- 
 
¶10. Pension reform is a bold and potentially divisive reform 
measure, which has stymied many other transition economies because 
of its pervasive impact on a cherished communist value--the 
guarantee of a steady, if modest, pension.  The World Bank mission 
head in Belarus noted to emboffs in a discussion of Belarusian 
economic policy that introduction of the new pension system could 
be considered a bell-weather of the regime's attitude to economic 
reform.  Ironically, the tight control over political life could 
make success in this reform more likely in Belarus than in more 
pluralistic neighbors. 
 
KROL