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Portable Pensions Will Reduce Informal Migrant Labour

Migrant workers in the CIS are vulnerable in terms of pension rights. The recipient country does not expect to care for them in old age, while the country of origin does not count the years worked abroad towards their retirement plan. Portable pensions may offer a solution, according to researchers of the HSE's Laboratory for Comparative Social Research (St. Petersburg) involved in the study Pension Mobility within the Eurasian Economic Union and the CIS

In recent decades, the number of migrant workers has grown, and the rates of migration between different CIS countries are the highest in the Eurasian continent. According to the Russian Federal Migration Service's official data as of February 2014, Russia has 2.3 million migrants from Uzbekistan, 1.5 million from Ukraine, 1 million from Tajikistan, 600000 each from Azerbaijan and Kazakhstan, 500000 each from Kyrgyzstan, Moldova, and Armenia, and 390000 from Belarus. In unofficial estimates, Russia has some 5-6 million migrant workers, accounting for about 7% of the country's workforce.

In 2012, remittances from migrant workers accounted for 48% and 31%, respectively, of Tajikistan's and Kyrgyzstan's GDPs. According to the World Bank, Tajikistan, Kyrgyzstan, Armenia, and Moldova are in the top ten countries with the highest proportion of remittances in their GDPs in 2012. At the same time, according to FMS statistics, one third of all migrants coming to Russia are people of pre-retirement and retirement age.

Today, someone working in a foreign country risks losing his or her pension or reducing it to the bare minimum back home.

The Eurasian Development Bank and the World Bank conducted a study Pension Mobility within the Eurasian Economic Union and the CIS. Experts involved in the study, including members of the HSE's Laboratory for Comparative Social Research (St. Petersburg) Tatiana Karabchuk, Veronika Kostenko, Anna Almakaeva, and Natalia Soboleva, studied the national pension systems of six countries: Russia, Belarus, and Kazakhstan – members of the Customs Union (CU) and the Common Economic Space (CES) – and also Kyrgyzstan, Armenia, and Tajikistan, integrating within the Customs Union, the CES, and the emerging Eurasian Economic Union (EAEU). The researchers also assessed the prospects for implementing effective regional mechanisms to ensure that migrant workers get fair pensions. The study's findings have been published in the book Pension Mobility within the Eurasian Economic Union and the CIS.

Pension Systems Differ Widely

The study found important differences across the studied countries' pension systems.

While Russia, Kazakhstan, Tajikistan, Kyrgyzstan, and Armenia have three-tiered pension systems with a required accumulative component, Belarus has a flat pay-as-you-go pension scheme.

The retirement age is also different, ranging from the lowest of 55 for women and 60 for men in Russia and Belarus, to 58 for women and 63 for men in Tajikistan and Kyrgyzstan, to 63 for both genders in Armenia. This June, Kazakhstan passed a new Law on Pensions, raising the retirement age to 63 for women by 2027.

The amounts and sources of allocations to pension funds also vary.

In Russia, for example, contributions to the Pension Fund stand at 22% of the payroll paid by the employer, without any deductions from the employee's salary. In Belarus, the total contribution is 29%, of which the employer pays 28% of the payroll, and the remaining 1% is deducted from the employee's salary. The employer's and the employee's respective contributions stand at 15% and 10% in Kyrgyzstan and at 25% and 1% in Tajikistan. In contrast, in Kazakhstan, the employee is the main contributor to the pension fund, paying 10% of his or her salary, while the employer may be required to contribute 15% of the payroll for certain occupations. Armenia is the only country in the sample where pension contributions are partially financed by the state.

The observed differences in pension systems emphasise the need for coordination. The study's authors warn that efforts to remove barriers to labour migration across the CES/EAEU and support a well-functioning shared labour market won't work without social guarantees.

In particular, coordination requires that the pension fund in the worker's country of origin should allocate and pay his or her retirement pension and obtain compensation from the pension fund of the country where the person has worked, proportionate to the number of work years abroad.

Portability of Pensions Lead to Civilised Migration

The study concludes that the portability of pensions should be an integral part of the free flow of the workforce within the EAEU and an important step towards reducing illegal migration and encouraging civilised methods of employing migrants.

In a macroeconomic sense, portable pensions ensure better use of human resources and the higher competitiveness of the EAEU globally.

A Common Pension Space Protects Migrants

The study's authors propose two solutions for a common pension space.

The first is based on existing EU practice where pensions are paid in the country of origin, taking into account working years in other countries, if any, and calculated according to the rules established in the country of origin. This system ensures the fairness of pensions, depending on the amount of contributions and the individual's salary level.

This option does not require any complicated calculations, since pensions are allocated and paid in the country where the individual habitually lives and applies for a pension. However, if most migrants working in recipient countries decide to stay there upon reaching retirement age, the burden of paying their pensions will rest on the recipient countries, i.e. mainly on Russia and Kazakhstan in the case of CIS countries.

"We do not consider it acceptable for the EAEU; therefore we suggest another option to avoid excessive pressure on pension funds in Russia and Kazakhstan," says Karabchuk.

The second proposed solution involves apportioning pension liability based on more sophisticated calculations taking into account both the work years and individual contributions to pension funds. This option is partially based on the EU experience, but adapted to the CIS region.

According to experts, there is a need for a shared system of monitoring labour migration and taking into account the number of years worked abroad. This means that pension funds in different countries need to establish effective systems for data exchange and clearing. This option also requires that the pension fund in the worker's country of habitual residence should allocate and pay his or her retirement pension and receive compensation from the pension funds of other countries where the individual has worked, and the amount of compensation should be proportional to the years worked in each country.

Pensions Encourage Formal Employment

Portable pensions should reduce informal employment, the study's authors argue. In addition, it will legalise migrants' earnings, reduce social tension, bring more money to CIS countries' pension funds, and promote economic integration within the EAEU.

Although the complexity of pension calculations across different pension systems in the CIS causes some concern, the study's authors are sure that these challenges can be overcome, just as they have been in the EU countries with different pension systems and retirement ages.

 

October 09, 2014