Discussion Paper

Discussion Paper #1

HSE Institute for Social Policy Experts Assess the Impact of the Coronavirus Pandemic on Social Security Institutions

Institute for Social Policy experts believe that as a result of the economic activity slow-down caused by measures to combat the coronavirus, a decrease in the wage fund, a reduction in the number of jobs, an increase in the unemployment and a revenues gap should be expected. Modeling shows that a 5% reduction in the number of jobs and wage fund will result in a decrease of 65.1 billion rubles per month.

The research COVID-19 Pandemic Impact on Social Security Institution carried out by HSE ISP experts Evgeni Yakushev, Oxana Sinyavskaya, and Andrei Stoliarov shows that decrease in mandatory monthly contributions to the national social security funds, including the Pension Fund of the Russian Federation (PFR), the Social Security Fund of the Russian Federation (FSS), and the Compulsory Health Insurance Fund of the Russian Federation (FOMS) should be expected from March 2020.

Preliminary simulations show that the total amount of the revenues gap will depend on the depth and duration of the crisis. If the intensity of reduction in the number of jobs and wage fund does not exceed 5%, and economic activity recovers to pre-crisis levels within three months, the extra-budgetary funds will not receive up to 195.4 billion rubles. If the crisis turns out to be very severe (minus 20%) and prolonged (9 months), the losses could amount to 2.345 trillion rubles.

Also, the announced reduction of the mandatory contribution rate for small and medium-sized enterprises from 30% to 15% will require additional compensation of falling revenues to the social insurance funds, estimated as approximately 15 billion rubles per month.

The Institute for Social Policy believes that a reduction in the revenues of extra-budgetary funds will require identifying additional sources to cover it to fulfill the social assistance obligation. The experts suggest several options for compensating the revenues decrease.

In particular, the Government could use the National Welfare Fund (NWF) for these purposes, the Ministry of Finance might issue special-purpose bonds, as well as transfer part of the social assistance obligations of extra-budgetary funds to direct funding from the federal budget. Thus, a temporary cancellation of compulsory medical insurance due to the impossibility of implementing the insurance principles in determining the cost of treatment may require the additional 2 trillion rubles per year.

The experts also believe that the pension system may need further adjustments. For example, the Government could introduce a flexible retirement age for redundant employees. This measure assumes the possibility of retiring before the mandatory retirement age.  Thus, the pension’s amount should be based on actually accumulated pension rights and follow the minimum requirements for the length of service and number of individual pension points.