Social Welfare

Russia Table of Contents

As Russia makes the transition from a command economy to a partial free-market system, the provision of an effective social safety net for its citizens assumes increasing urgency. A 1994 World Bank report described the current social-protection system as inappropriate for the market-oriented economy toward which Russia supposedly was striving. Among the major shortcomings noted in the report were the continued major role played by enterprises as suppliers of welfare services, as they had been in the Soviet period; the absence of any coverage for large groups of people and the inadequate level of benefits in some regions; a growing disparity between a shrinking wage base and the demands placed on the system; and the failure to target the neediest recipients. As the economic transition of the 1990s forces more of Russia's citizens into poverty, the state has tried to maintain the comprehensive Soviet system with severely constrained resources.

The system's inefficiency is exacerbated by its fragmentation. As in the Soviet period, allowances and benefits are administered and financed by diverse agencies, including four extrabudgetary funds, several ministries, and the lower levels of government. The Ministry of Social Protection is the primary federal agency handling welfare programs. However, that ministry focuses almost exclusively on the needs of people who are retired or disabled; other vulnerable groups receive much less attention. The four extrabudgetary funds that provide cash and in-kind social welfare benefits at the federal level are the Social Insurance Fund, the Pension Fund, the Employment Fund, and the Fund for Social Support.

Social security and welfare programs provide modest support for the most vulnerable segments of Russia's population: elderly pensioners, veterans, infants and children, expectant mothers, families with more than one child, invalids, and people with disabilities. These programs are inadequate, however, and a growing proportion of Russia's population lives on the threshold of poverty. Inflation has a particularly deleterious effect on households that rely on social subsidies. Women traditionally have outnumbered men in such households.

The Fund for Social Support supplements a variety of in-kind social assistance programs in Russia. It is financed through the Ministry of Social Protection and supplements social welfare programs at the subnational level. The federal government has transferred most responsibility for social welfare, health, and education programs to subnational organs but has failed to ensure their access to adequate revenue. The total allocation of transfers from the federal budget to localities amounted to less than 2 percent of Russia's gross domestic product (GDP--see Glossary) in 1992. Thus, the quantity and quality of social services at the local level--including the provision of food vouchers and cash payments to cover specific items such as heating bills--are far from certain as time passes. Under these conditions, local jurisdictions have come to rely increasingly on extrabudgetary sources, the instability of which makes long-term planning difficult.


Pensions are the largest expenditure of the social safety program. The Pension Fund accounts for 83 percent of Russia's extrabudgetary allocations. At the end of 1994, about 36 million citizens, or 24 percent of the country's population, were receiving pensions, an increase of about 5 percent in the first three post-Soviet years. Two broad categories of pensions are paid in Russia: labor pensions, which are disbursed on the basis of a worker's payroll contributions, and social pensions, which are paid to individuals who have worked for less than the five years needed to qualify for a labor pension. All Russian citizens who have worked for twenty years are entitled to at least a minimum pension. In 1994 about 75 percent of all pensioners received labor pensions. The Pension Fund also finances some child allowances and other entitlements.

The Pension Fund is administered by the Ministry of Social Protection and financed by a 29 percent payroll tax and by transfers from the state budget. Between 1991 and 1993, the real income of pensioners was cut in half as prices rose rapidly and pension indexation failed to keep pace. Inflation also severely eroded the value of the life savings of retirees, and a disproportionate number of pensioners were victimized by financial scams. A 1994 law requires quarterly indexation of pensions, but the law was not observed consistently in its first year, and in mid-1995 the average pension fell below the subsistence minimum for pensioners. Beginning in 1994, the government's failure to pay pensions on time led to large rallies in several cities. In August 1994, an estimated 10 million pensioners did not receive their checks on time, and pension arrears mounted in the two years that followed. By mid-1996 the payment backlog was estimated at US$3 billion. The present system includes an important provision that has kept many pensioners above the poverty line: it allows workers to draw pensions while continuing to work. In 1995 as many as 27 percent of Russian pensioners continued to work after retiring from their primary job.

Russian and Western experts agree that the pension system requires comprehensive reform--although its rate of payment compliance by enterprises is substantially better than that of the State Taxation Service. The most pressing needs are an effective system of indexation of pensions to purchasing power, an insurance mechanism, individualized contributions, higher retirement ages, and the closing of loopholes that allow early retirement. In 1995 the Ministry of Social Protection began work on a reform that would establish a three-tier pension system including a basic pension, a work-related pension in proportion to years of service, and an optional private pension program. In 1995 Prime Minister Viktor Chernomyrdin admitted that the state budget lacked the money to continue indexing pensions according to living costs. In November 1995, a decree by President Yeltsin, On Additional Measures to Strengthen Payments Discipline for Settling Accounts with the Pension Fund, set stricter reporting standards for payments to the fund by organizations and citizens, in an effort to preclude nonpayment. In the midst of his campaign to be reelected president, Yeltsin then approved two laws increasing minimum pension levels in three stages, by 5, 10, and 15 percent, between November 1995 and January 1996.

Women are entitled to retire when they reach age fifty-five, and men when they reach age sixty. Nevertheless, financial hardship leads many women to remain in the labor force past retirement age, even while continuing to receive pensions, in order to prevent a drop in their families' standard of living. In 1991 women constituted an estimated 72 percent of pensioners. The disproportion between the genders stems from women's earlier permissible retirement age and their greater longevity. Aside from pensions, women receive other retirement privileges. Mothers of five or more children are entitled to a pension at age fifty. "Mother Heroines"--women with ten or more children--receive an allowance equal in sum to the pension, and the time they spent on child care leave counts toward the minimum twenty years of work required for labor pensions. For these reasons, many women retire before age fifty-five, while most men wait until they reach sixty-two. (Many job categories routinely allow retirement for both sexes before the standard ages.)

Worker Protection and Benefits

Legislation has established numerous protective devices at the enterprise level to provide a social safety net that is particularly attuned to the needs of women of childbearing age. Thus, family policy and employment policy are inextricably linked. In addition to basic allowances for all workers, special allowances exist for children of military personnel, children with unmarried, divorced, or widowed mothers, and children who are disabled. Women who have an employment contract are entitled to paid maternity leave from seventy days prior to giving birth until seventy days afterward. Maternity leave benefits are based on the minimum wage rather than on a woman's current wage, however.

Russia also provides a maternity grant, which is a onetime payment totaling three times the minimum wage or 45 percent of the minimum wage in the case of mothers who have worked less than one year. In order to receive a maternity allowance (or sickness benefits), a woman must have an employment contract. The maternity allowance amounts to 100 percent of the mother's salary, regardless of her length of employment.

Maternity allowances in Russia are followed by a monthly child allowance of 80 percent of the minimum wage in the case of children up to eighteen months old. This allowance may be supplemented by a child-care allowance, set at 35 percent of the minimum wage, to compensate for earnings lost in the course of caring for children in this age bracket. The latter allowance is paid to mothers over the age of eighteen who have been in the labor force at least one year. An additional compensatory child-care allowance, equivalent to 35 percent of the minimum wage, is available to mothers or other caretakers of children under the age of three.

Russia also has an extended child allowance of 45 percent of the minimum wage (60 percent for children of military personnel, children living with a guardian or in an orphanage, and children with AIDS) to assist families with the care of children between the ages of eighteen months and six years. Single mothers and those who receive no child support from the father of their child may obtain an additional 45 percent of the minimum wage up to their child's sixth birthday; this figure is then increased to 50 percent and remains effective until the child is sixteen. In May 1992, special cost-of-living compensations were introduced to cover the increased expense of meeting children's basic needs. These compensations ranged from 30 percent of the minimum wage in the case of children less than six years old to 40 percent in the case of those ages thirteen to sixteen.

Among other benefits provided by enterprises to their workers are access to special shops that sell subsidized milk for families with low incomes and small children and an allowance to children for the purchase of a school uniform when they start school and again at the age of thirteen. Other regulations focus more specifically on families with small children. These include protective legislation prohibiting the dismissal of pregnant women or women with children under the age of three, banning night work and overtime for mothers of small children, stipulating workload concessions to pregnant women and mothers of young children, and providing flextime, part-time work, home-based employment, nursing intervals, and additional paid and unpaid leave to mothers to care for sick children. Many workplaces also permit informal leave arrange-ments for the purpose of food shopping.

A significant portion of Russian workers have entitlements to housing, child care, and paid vacations, regardless of their rank within an enterprise. Housing entitlements involve either outright provision of a low-rent apartment (most apartment rents are very low) or various forms of cash or in-kind assistance. Moreover, occupants obtain an implicit ownership right extending beyond their term of employment. They may also have the legal title of the apartment transferred to their own names without paying any purchase price (see Housing, this ch.).

Besides housing allowances, most large and medium-sized enterprises provide on-site medical facilities or they contract for outside health care facilities for their employees. The medical care provided through the auspices of enterprises is free and often is of much higher quality than the care available in government-run facilities (see The Health System, this ch.). Finally, enterprises provide their employees with goods ranging from foodstuffs to consumer durables. The enterprises procure these items through direct purchase, barter, or from their own farms, and make them available at below-market prices.

The Social Insurance Fund is the administrative mechanism for payments to workers of birth, maternity, and sickness allowances, and child allowances for children between the ages of six and sixteen. The fund is managed by the largest union organization in Russia, the Federation of Independent Trade Unions of Russia (Federatsiya nezavisimykh profsoyuzov Rossii--FNPR) and serves as the repository of enterprise contributions consisting of 5.4 percent of the total payroll (see Social Organizations, this ch.). Nominally an independent institution since its establishment in 1991, the Social Insurance Fund is in fact responsible to the FNPR.

In 1993 an overhaul of the fund's administrative structure began as a result of enterprises' low levels of compliance with contribution requirements, charges of serious abuse by trade union officials, and the government's desire to promote democratic accountability. Since 1993 the management system has been in flux, and the quality of administration varies considerably throughout the country. Most worker contributions to the fund are retained by the enterprise for distribution. About one-half of the money goes to sick pay and one-fifth to subsidize treatment at sanatoriums. Family support includes birth and maternal allowances intended to replace lost wages, but child allowances do not address poverty directly because payments are not in proportion to household income.

Russia also has an overall system of family benefits. These can be grouped into three broad categories: those payable to all families with children, regardless of income or other qualifying conditions; those payable to working mothers; and those payable to disadvantaged families.

The communist system, for all its economic and moral deformities, provided virtually universal employment, so that every able-bodied citizen had an opportunity to earn income and thus social security. In postcommunist Russia, the phenomenon of unemployment is openly acknowledged and growing (see Unemployment, ch. 6). At the end of 1995, some 8.2 million people were registered as unemployed, indicating a far higher actual number. Three years earlier, about 5 million were registered. The "new poor," in the parlance of the World Bank, put a considerable strain on the resources available in Russia for social welfare.

Administered by the Ministry of Labor, the Employment Fund, which is financed by a 2 percent payroll tax from all enterprises, disburses compensation to jobless people. The level of compensation, already low in 1995, was expected to drop further if unemployment rose. As part of its assistance package to Russia, the World Bank is providing a computerized system that will help the country register claimants for unemployment and pay adequate benefits.

The Ministry of Labor's subsistence minimum is based on the cost of nineteen staple items considered sufficient to ensure survival, plus an estimated minimum cost for utilities, transportation, and other necessities. The calculation varies according to age-group and region; trade unions use other formulas that usually expand the number of people identified as living below the poverty line. In early 1996, the State Duma considered a law that would make the Ministry of Labor's figure the legal basis for establishing minimum wages, pensions, and other levels of social support. Barring such legislation, the subsistence minimum has no legal status.

The Homeless

The urban homeless are a category of the socially disadvantaged that received no official recognition in the Soviet era. Because Soviet law banned beggars and vagrants, the homeless (meaning anyone who lost his or her place of residence for any reason) were imprisoned or expelled from the cities. When the ban ended in the early 1990s, thousands of homeless people, mostly men, appeared in Russia's cities; the majority had migrated to urban areas seeking work or were refugees from the armed conflicts that erupted in the Caucasus and Central Asia when the Soviet Union dissolved.

In 1995 Moscow authorities estimated that city's homeless population at 30,000, but Western experts put the figure as high as 300,000. An estimated 300 homeless people died in Moscow in the first half of the winter of 1995-96, and on-site medical personnel reported widespread disease. At that point, Moscow had one shelter, with a capacity of twenty-four, and other Russian cities offered no sanitation or temporary residence centers of any sort. In the mid-1990s, the government of mayor Yuriy Luzhkov followed the Soviet pattern of forcibly removing vagrants from the city, especially at times when large numbers of Western visitors were expected. Police routinely harass and beat vagrants found on the streets. The Soviet propiska system of residency permits, which granted housing and employment to individuals only in the place where they were officially registered, has been found unconstitutional several times by Russia's Constitutional Court. However, many local authorities, including those in Russia's largest European cities, continue to require Soviet-era documentation; in 1995 Moscow assessed a fee of 35 million rubles (about US$7,000) for registration as a permanent resident of the city, and several other cities adopted similar measures. In the face of such restrictions, many homeless individuals are unable to change their status.

Through the first half of the 1990s, no specific agency of the Russian government has borne responsibility for aiding the homeless; the Federal Migration Service, a badly underfunded and understaffed agency created in 1992, has not been able to carry out its legal responsibility to locate housing and employment for internal and external migrants (see Migration, ch. 3). A number of Western humanitarian organizations, such as the Salvation Army and Doctors Without Borders, are the main source of assistance. In late 1995, the many deaths of homeless people prompted the Moscow government to announce plans to build ten new shelters and to ease the procedure for obtaining residency permits.

Private charities in Russia have suffered from an absence of government support and a general lack of social acceptance. In 1995, for example, the soup kitchen of the Christian Mercy Society in Moscow, which fed 400 poor people daily, had to pay city officials to stay open, and the organization was unable to obtain a designated space in which to operate. In fact, Russian law gives no status whatever to private charities, so such organizations must fend for themselves in helping the increasingly large number of urban poor. Russian society generally distrusts charities, partly because no such institutions existed either in tsarist times (royalty and the nobility provided whatever assistance went to the needy) or in the Soviet era, and partly because society has become fragmented by the difficult economic conditions of the 1990s.

According to Western experts, a comprehensive system of social protection is an urgent need of the Russian government, both for humanitarian reasons and as a prerequisite to financial stabilization and economic restructuring. The quality of future Russian society also will depend on reversing a steep downward trend in the quality of education and health care that has eroded the ability of Russians to improve their economic standing and to feel the sense of basic security that the Soviet system provided to some degree. Under Russia's conditions of drastic social and economic change, such forms of support are especially missed in the mid-1990s.

Custom Search

Source: U.S. Library of Congress