A few weeks ago we blogged about the Russian government’s proposed changes to their national pension scheme. The upshot was that the age of entitlement was going to be raised and many people weren’t happy about having to wait longer until they can take their government money. The government’s defence was that people are living longer now than they were when the current pension ages (55 for women and 60 for men) were introduced over thirty years ago.
However, according to this piece in the EurasiaReview, the ways in which the proposed changes are being defended involve a misuse of the demographic data. Anatoly Vishnevsky at Moscow’s Higher School of Economics argues that the link between a rising pension age and a rising life expectancy is “based upon an incorrect understanding of life expectancy”. Although the life expectancy for Russians has increased in the last thirty years, that only measures the number of years a person will be expected to live from birth at any point in time. The more relevant figure when it comes to retirement ages, is what is the life expectancy of those actually at retirement age (not of those being born).
Although Russian life expectancy has increased, this is largely due to reducing infant mortality, and not by radically increasing the number of years a Russian who survives childhood will actually live. Indeed, today the average Russian man at age 60 can only expect to live 1.6 years longer than his 60 year old counterpart living in the 1920s. This means that if the pension age is lifted more than the life expectancy at age 60 (or 55, depending on the retirement age in question) has increased, then the average number of years that a Russian will receive the pension will have actually declined, despite an increase in life expectancy.
With this in mind, Vishnevsky shows that the increased ages at which the pension kicks in will leave elderly Russians less well-off than their counterparts in 1965. If the pension age for men is increased to 65, then the average Russian man will receive the pension for 2.5 years less than one in 1965. For women, the disparity is even worse: their time on the pension will be 2.7 years less than their predecessors in 1965. So while rising life expectancy rates are useful indicators, they don’t tell the whole story and don’t tell you, necessarily, whether the retirement age should be raised. A cautionary lesson.