What is similar and different pension systems of Germany and Russia

Russian pension system largely takes the example of German. “Pravmir” figured out what is similar and different pension systems of the two countries, how successful was the reform in Germany and that shows the “big Mac index”.

Photo: unsplash

  • Pensions – why then it will be even worse
  • To live to 65: learn when it’s your time to relax
  • What’s wrong with raising the retirement age in Russia
  • To retire anew: why now and will it become more disabled
  • Where does pension: what is pension formula in Russia

The retirement age
What is common

Both countries have begun to raise the retirement age. In Germany, the reform started in 2012, until that time the age of retirement was 60 for women and 63 to 65 years for men. At the end of the pension reform in 2031, the age of retirement will be equal for both sexes: 67. In Russia raising the retirement age will start in 2019, and one of the outcomes will also become equalizing the retirement age of men and women from the current five (60 and 55 years, respectively) to two years (65 and 63 years) by 2034.

What’s the difference

In Germany the retirement age has been and will remain higher than in Russia. However, more and “German” life expectancy: 78.1 years for males and 83.6 years for women versus 66.5 and 77.1 years in Russia. In 2016 in Germany, the discussion of further raising the retirement age. For example, it is expected to finally link it to life expectancy.

The German pension reform is much softer domestic: increase of age is more striking – by one month per year from 2012 to 2024 and two months to complete the transition. In addition, Germany is below the minimum seniority required for a pension for old age five years. In Russia this period gradually increased from six years in 2015 to 15 years in 2025, when completed, this part of the pension reform.

Retirement savings
What is common

In both countries pension guaranteed by the state and are formed by contributions to the state pension Fund. The reason is simple – Germany, which in 1889 was the first country in the world introduced state old age benefits (then the government of Otto von Bismarck set the retirement age at 70) – became a model for most subsequent public pension systems. Although the authorities of the German Empire wanted a way to seize the initiative from the labor movement (parallel in German society developed a voluntary social security, which has troubled the conservative Industrialists), in their endeavour subsequently focused including in the Soviet Union and the pension system, which was inherited by the Russian Federation.

What’s the difference

In Germany, unlike Russia there is no state funded pension. The amount of the pension depends on the wage and seniority, however, to defer a portion of their earnings to Finance future old-age German citizens can volunteer – in addition to mandatory social contributions. Usually this method is chosen by people with above-average income – more than 3 thousand euros per month.

Insurance pension contributions in Germany to 2018 is 18.6% of the wage before taxes and other payments, the employee and the employer contribute that amount equally – 9.3%. The total amount of social contributions (in addition to retirement are health insurance, unemployment insurance, and in case you need care) is slightly less than 40% (in 2017 – 39,73%).

In Russia, the “retirement” part of social contributions is higher – 22% (and 6% could go to the formation of the pension upon the termination of the government’s moratorium in 2020), but the overall social burden on employers less 30%. More in Germany and the total payments to the government on income of individuals – more than half. In Russia in General, they are slightly more than 40%.

Retirement points
What is common

Pension points are coefficients which consider the contribution of the pensioner to the pension Fund of the state. In Russia they appeared in 2015 (before it was taken into account direct savings in the Pension Fund), in Germany there are since 1992, so that here the Russian authorities took the example of our German colleagues. By the way, in both countries among the reasons of the emergence of pension points was the need for harmonization and integration “Soviet” pensioners from the GDR and the USSR.

Pension points accumulated over a lifetime, is an important multiplier in the formula for calculating the future pension – the more, the larger the payment will be monthly to elderly people.

What’s the difference

The German system is more predictable and subject to strict rules. First of all, it concerns “rates” pension credits – that is, a specific amount earned over the life of the pension.

The amount earned for a year of pension points in Germany depends on the relationship the employee’s salary to the national average. In the General case of one pension point is equal to the average salary per year (in 2018 is between 30 and 45 euros per month in Western Germany and € 2695 East). While there are limitations on the number earned for the year of points – in 2018, the maximum salary that is taken into account in their calculation, amounted to 6,500 euros in the West and 5800 euros for East Germany.

Russia has a very similar scheme that takes into account contributions to the Pension Fund and the maximum amount of benefits (in fact – this is the same maximum salary). The differences relate to the definition of “rates” points at retirement.

German formula takes into account total number of payments to the pension Fund for the previous year, the size of salaries, the demographic situation in the country. In General, it is governed by the formula reflected in Social code and can not change without modifying the law.

In Russia, the government can set the price points at its discretion. The unpredictability of this indicator is one of the main claims to the pension formula in Russia. Usually power index price points for annual inflation, but depending on economic conditions this rule may be waived.

The amount of the pension
What is common

And in Russia, and in Germany power ensures that upon reaching a certain age people will get a livelihood, even if he has not fulfilled all the other “pension” conditions. Help the poor – the basis of the welfare state. The differences lie in the amount of benefits that the state can allocate to the recipients of social assistance.

What’s the difference

Social old-age benefit, which can claim people have not fulfilled the terms “labor” or pension insurance in Germany is 380 euros (about 27.9 thousand rubles). However, a pensioner receiving a monthly income below € 789 (57,9 thousand), has the right to claim additional social assistance from the state, from 324 to 404 € (23,8 thousand to 29.7 thousand rubles) and some utility benefits.

In Russia the analogue of these indicators are the minimum old-age pension – 4 982,9 of the ruble and living wage of the pensioner – the cost of the minimum required set of benefits. The Federation and regions compensate the elderly the difference between their monthly financial support and this amount. Depending on the region, it changes from 7 489 roubles in the Tambov region to 19 thousand rubles in Chukotka. Russia’s average subsistence minimum of a pensioner is 8 726 roubles, which is 6.6 times less than in Germany in absolute numbers.

The average size of pensions in Germany and Russia also differ significantly. In Germany it is Euro 782 (57,5 thousand rubles), in Russia – 13 323,1 of the ruble. The median pension – that is, such that the receiving half had more and half less than this amount, usually one and a half times lower than average values.

German men (especially the inhabitants of the “Western” lands) receive much higher pensions than women (average 1013 Euro and 591 Euro, respectively), however due to the fact that in the XX century women were more likely to abandon a career in favor of homemaking and had less opportunity to accumulate pension points. The German government eliminates the difference with a “widow’s pensions” – payments for the deceased spouse – in contrast to Russia, which considers each retiree separately.

Although the cost of a set of basic food and clothing in Germany and Russia are comparable (in Russia prices are lower by 10-20%, but not significantly), utilities, and transport in Germany are very expensive. However, the replacement rate for lost earnings (i.e. the ratio of pensions to wages) in Germany is 70%, while in Russia often does not even reach the international standard of 40%.

The index of the pension the welfare of the world, compiled by Natixis Global Asset Management, in 2017 Russia took the 40th place is: 35th place for the material well-being, 36th – quality of life, 42nd in terms of health and only 43rd for the financial security of the elderly. Germany, who finished overall in 7th place, entered the top ten on all these indicators but, in fact, financial security (21-e a place).

If, however, use the famous “big Mac index” (a comparative measure of purchasing power parity in the number of burgers that you can buy at the median income suggested by the Economist magazine), in 2018, the situation of German retirees was more than two times better than the Russian: the average pension in Germany you can buy a big Mac 212 conditional, and in Russia – only 102.

Leave a Reply

Your email address will not be published. Required fields are marked *