Transcript of the meeting:

Vladimir Putin: Good afternoon, colleagues.

We will use a video conferencing format today as we summarise the Pension Fund’s performance in 2010 and discuss its objectives for the near future. Let me make a few brief remarks to begin, and then the Pension Fund’s board chairman, Anton Drozdov, and some of his colleagues working in the regions will tell us what they have been doing. We’ll discuss what we should do together in order to consolidate the country’s pension system.

As you know, the development of a reliable pension system is among our unconditional priorities. There are more than 40 million pensioners and WWII veterans in Russia at the moment. More than 40 million! We realise perfectly well how much these people have done for this country’s benefit. They now have every reason to expect care and attention from the state.

In recent years, we’ve been raising pensions and other welfare benefits on a regular basis. Let me remind you that Russia is the world’s only country to have carried out a large-scale modernisation of its pension system and raised pensions and other benefits during the economic crisis. As a result, pensions for retirees grew, on average, by nearly 45% last year alone.

Beginning February 1, 2011, retirement pensions were once again indexed (increased) by 8.8%, and social pensions were raised 10.3% on April 1. Monthly benefits for veterans, disabled persons and other privileged categories of citizens were also indexed by 6.5% starting on April 1. Consequently, the average retirement pension and the average social pension now total 8,865 and 5,214 roubles, respectively. Retirement pensions will be indexed once again starting on August 1, 2011, in case January to June inflation exceeds 6%. The relevant budgetary allocations have been stipulated.

Naturally, substantial funding is required to raise pensions and benefits. The April 2011 indexation requires about 2.2 billion roubles. Over 20 billion roubles will be spent on this purpose through 2011. I would like to stress again that pension support is our priority, and the relevant resources must be found.

We must do our best to prevent what happened in the mid-1990s, when no pensions were paid for six months.

We will devote special attention to supporting war veterans. In 2010, monthly payments to this category of citizens increased by over 3,500 roubles.  A war veteran’s average monthly benefit now totals 23,000 roubles, with the widows of soldiers killed in action receiving 17,000 roubles per month. Of course, we will continue to improve our pension system in the interests of current and future pensioners. Indeed, we have a lot of work to do.

In this connection, I would like to ask the Pension Fund to concentrate on the following issues. First, as you know, an important decision was made last year. Since January 1, 2011, the single social tax was replaced with insurance premiums to social funds. This new insurance based programme was introduced smoothly as planned. We must now see that this work continues, attaining our strategic goal step by step. In short, pensions must total at least 40% of a workers’ pre-retirement income. The so-called replacement rate now stands at nearly 38%. Average pensions total 8,000-8,800 roubles, while the Ministry of Economic Development estimates current average wages and salaries at 20,010 roubles. The Ministry expects such wages to reach 23,400 roubles in late 2011. So, pensions must increase faster to attain a 40% replacement rate.   

Second, I would like to note the need to improve the quality of public services. This is very important! Pension Fund offices are primarily used by senior citizens and disabled persons. It is important that we create comfortable conditions for them. Preliminary appointments, as well as phone-in and online consultations, are essential.

In 2010, territorial fund offices received over 22 million individual requests concerning pension support issues. The Pension Fund administration is called on to organise its work in such a way as to facilitate trouble-free allocation of pensions, benefits and other social payments. I would like to stress that people’s interests must be a priority for the Pension Fund administration.

And now the last thing. We must be more proactive in introducing online Pension Fund services, in keeping online pension files and in facilitating online cooperation with insurance companies. This will ensure a more cost-effective and efficient disbursement of budgetary allocations. And, what’s much more important, this will provide more convenient pension services for the public. Document allocation deadlines will be shortened, and the number of required documents reduced.

You and I know perfectly well that people who need our help are contacting welfare agencies. Social workers must provide top-quality assistance in this sphere. I want to point this out again.

I now give the floor to Anton Drozdov who will report on the results of the Russian Pension Fund’s 2010 performance. Please.

Anton Drozdov, Board Chairman of the Russian Pension Fund:

Good afternoon.

First of all, I would like to thank you, Mr Putin, for your attention to the problems of the Pension Fund, on behalf of the Fund’s 136,000 employees. A review of the Pension Fund’s problems at such a high level serves as a high assessment of our work and as a major incentive for its activities.

I would now like to say a few words about the Fund itself. It has now evolved into a single federal centralised system with offices in every region and district. We serve the public and insurants in line with common regulations and standards. This means that Russian citizens can obtain standard services from the Fund nationwide.

The Pension Fund performs the following main functions in cooperating with about 40 million pensioners and 17 million social-benefit recipients. We keep individual files on the pension rights of more than 100 million Russian citizens. We administer almost four million insurants and about three million self-employed individuals. The Fund manages the pension savings of over 70 million Russian citizens, allocating maternity capital in excess of 2.5 million roubles to families. And, finally, it cooperates with all Russian regions on co-financing programmes, construction programmes and those for strengthening the material and technical base of welfare agencies providing selective welfare assistance to unemployed pensioners.

We cooperate closely with numerous federal executive authorities and organisations, including the Federal Tax Service, the Federal Court Bailiff Service, Russian regions, other state extra-budgetary funds, the Russian Post and banks. All this facilitates our all-round work which is done mostly online .Technically speaking, some organisations are not yet ready for this. This issue will be discussed later on.

We faced major problems throughout 2010. As the country slowly coped with the crisis, we had to implement various decisions to raise the level of pension support, to fight poverty and to implement a number of other programmes to improve the population’s material well-being. These measures were anti-crisis in character. Nevertheless, the Fund attained its income and expense objectives in 2010. Our income and expenses total 4.6 trillion roubles and 4.4 trillion roubles, respectively, accounting for 10% of the GDP, attaining industrialised world levels.

Vladimir Putin: 4.6 trillion in revenues?

Anton Drozdov: Yes, and 4.4 trillion in expenses. In 2010, the federal budget allocated us 1.3 trillion roubles to finance the deficit. In 2011, we will have about 5 trillion roubles. But this year’s federal allocation will be less – only 876 billion roubles – this is because we have increased insurance contribution rates.

The basic programme which we implemented in 2010 to increase pension amounts was possible with valorization. We planned to raise pensions by an average of 1,100 roubles.

Vladimir Putin:  How much is 1 percentage point of these social charges?

Anton Drozdov: A little above 100 billion roubles.

Vladimir Putin: A little above 100 billion roubles, that is to say, a fall of one percentage point would mean minus 100 billion roubles.

Anton Drozdov: Minus 105 billion.

Vladimir Putin: Go on, please.

Anton Drozdov: In the process of valorisation, we re-examined over 36 million pension files, and in 20 million files we updated work records. This allowed us to carry out the necessary measures on time, and everyone received the additional amount as January pensions were paid out.

Our second line of activity in 2010 was to index pensions. You have already mentioned this and described the pension amount. I would only like to add that all the recalculations, all the indexation changes were effective within the planned period; there were no delays. The pension, as a result, now tops a pensioner’s subsistence level by over 80%.

The long-range development strategy for those with Soviet-era work record sets 150% to 200% as a guideline. We are steadily approaching these figures. For those who reached their pensionable service length in 2002, it is 40% of their lost earnings, or something like 38%, the figure you mentioned.

To eliminate poverty among the population, we introduced a new mechanism: a federal or a regional social supplemental payment. Sixty-six regions in the Russian Federation introduced the federal social supplemental payment, while 18 adopted the regional payment. The federal budget allocated over 120 billion roubles for these purposes. In 2011 the programme will continue. Locally, it is administered by territorial Pension Fund authorities, along with the federal social safety net agencies. This cooperation is carried out online, via e-communications channels, using the insurance number of the individual personal account.

I would like to say that raising pension amounts is not our sole objective. All of the Pension Fund’s work is done for the sake of people. And the Fund particularly focuses on the quality of its services. It is mostly elderly and disabled people who apply for assistance. To better serve them, we began establishing customer services in our offices several years ago. These are now available across the country and include facilities for disabled people: many offer e-waiting lines and online appointments.

In 2010, the Fund decided to make recalculations for working pensioners once a year, without requiring an application from the pensioner. This allowed us to reduce the number of visits to our client service centres from 27 million to 22 million in 2010. We propose to continue this practice so that a person does not have to visit the Pension Fund unnecessarily but can receive service online.

Vladimir Putin: You should move carefully here. What you are doing is absolutely right. But pensioners are old-aged people and not always good at modern communication methods. They don’t use the Internet often either. Here, you should combine several approaches.

Anton Drozdov: We are very particular about how we treat our pensioners. We even have psychologists on our staff. The Russian Union of Pensioners also advises us, their people are often present in our offices. Our personnel undergo special training on how to deal with these people. Still I would like to point out that up to half of the applications for consultation  now come through the online reception office on our website. Already on the state services site one can apply for the state pension co-financing programme, receive information on state welfare aid provided as a set of social services, and get a statement on an individual personal account in the system of mandatory pension insurance. Incidentally, any Sberbank branch can provide this statement as well. We are going to expand this programme with other banks, too.

Today, four million people have already joined this programme and receive statements in e-form. This is convenient not only for the average person and for us, but it also saves money. Mailing one letter costs 30 roubles, and this means we are already saving 120 million roubles. We send out more than 70 million letters a year.

Also, in keeping with the adopted law, we plan to convert most Pension Fund services into e-form, including an application for a pension.

Every change in the pension system and all the decisions to raise pensions are always explained in detail and publicly. We use this form of communication extensively for these purposes. As you may recall, the subjects most socially sensitive in 2010 were valorization, social supplemental payments and maternity (family) capital.

But what concerns us most is forming a new pension culture, especially among young people, because it is very important that they realise their personal responsibility and adopt an active stance on their future pensions. To improve pension literacy, the Fund launched a special programme in 2009. This year we plan to issue a manual in a print run of one million copies explaining in simple and easy-to-understand terms what opportunities the average person has to improve his or her pension.

As far as the pension co-financing programme is concerned, last year it collected one billion roubles more in additional pension contributions than in 2009. In other words, we collected 3.6 billion roubles in 2010 compared with 2.6 billion roubles in 2009. This year the programme is progressing at a rate five times faster than in the first quarter of last year. That indicates that people trust the programme and that 4.5 million have already applied to join it.

For everybody’s convenience, we have set up a special hot line for inquiry. Calls by individuals are free from anywhere in the country.

The Pension Fund does more than support senior citizens. We also support the young. For this, we are continuing the maternity capital programme. We issued more than 2.6 million certificates and allocated 97 billion roubles in this programme last year. The families entitled to maternity capital have spent 80% of their benefits to buy housing or pay their mortgages. The bulk of the remaining funds went into education.

Vladimir Putin: So you are saying that the maternity capital programme is working the way we planned it and we are reaching the goals we have set.

Anton Drozdov: Yes. We plan to invest 120 billion roubles in it this year and also expect the bulk of it to be used for housing. But there is one alarming trend: some recipients have been using crooked schemes to cash their certificates.

Vladimir Putin: I heard about it.

Anton Drozdov: We have been taking steps to control such cases together with law-enforcement agencies, but more effort is needed. We have drafted proposals and sent them to the Ministry of Healthcare and Social Development. These will be submitted to the government shortly. The idea is to combine the efforts of federal executive bodies with those of the healthcare Ministry and the Pension Fund. It is also essential that the regional authorities ban the deceptive advertising of con artists who make offers to cash maternity capital certificates. They advertise in regional media.

There is something else we do. We co-finance regional programmes to supply materials and equipment to local social offices that provide services and targeted assistance to non-working pensioners. Over the five years since this programme’s inception in 2006, we have helped 188,000 people improve their housing, out of the 260,000 who applied. More than 3,000 beds were added to hospitals and other similar services. In 2010 alone, 142 establishments were overhauled and additional equipment was supplied to 15 services. Targeted social assistance was provided to 100,000 non-working pensioners.

This year, the programme will receive 1 billion roubles in financing. The funding will be provided through a different plan involving the federal budget. Now it also  includes an expenditure that was not there before – buying vehicles for social and socio-medical establishments such as day centres for the elderly. We will channel around 200 million roubles to co-finance transport acquisition for regional centres.

We have also assumed the fund administration function from the Federal Tax Service. Although we did not have much time to prepare before taking it on, we still managed to do it smoothly. We have been doing this together with the tax service since 2002.

Our tax collection plan has been fully met: over 1.9 trillion roubles have been added to the state pension fund. The compulsory medical insurance fund has been augmented too.

We have had very encouraging indicators in the first quarter of this year. The pension tax collection even exceeded the target, and was 51% above the same period last year, while we expected a 43% increase with the raised social premium.

The same holds true for the Compulsory Medical Insurance Fund. But we try not to get overexcited about these results because premiums have increased, and so were the number of benefits, which makes  administration more difficult. Last year, for example, only 50% of insurers paid their premium in full, while the other half had benefits. This year, more insurers will have benefits. We need to make more efforts to control the collection of insurance premiums, so we have drafted a number of proposals.

Vladimir Putin: There have been concerns about transferring the premium collection function from the tax authorities to the Pension Fund, concerns that the pension system would not be able to collect the money effectively. But from what you are saying, I understand that this did not happen, right?

Anton Drozdov: No it didn’t. Moreover, the change has enabled us to consolidate all accounting and reporting, and streamline it. This will also help insurers feel more at home with it, at the same time giving us the latest information on each person’s pension status (rights to retirement and other benefits). We can control these records now, while previously, they were kept in different places and therefore had unassigned amounts. This violated people’s rights to benefits. Another important change was the introduction of electronic interaction with insurers. This is now a compulsory requirement for companies employing 50 or more people.

We think it expedient to switch to electronic interaction entirely in a year or two. The tax authorities and the social insurance fund would benefit from that as much as we will. To achieve this, we propose making it compulsory for all budget-financed companies to use electronic media to communicate with us. If it is too expensive for some small companies, we would like to ask for permission to provide them with the necessary funds at the initial stage.

Mr Putin, in 2010, we took all the necessary steps to increase pensions and improve living standards, and to eliminate poverty. We believe that 2011 will be just as difficult, because we will have to focus on improving the quality of our work. I would like to assure you that the Pension Fund team is ready to take this on, and we will make every effort to ensure that our pension system operates smoothly and effectively. We are ready to fulfill our social commitments. Thank you.

Vladimir Putin: How big is your team, across Russia?

Anton Drozdov: We total 136,000 people.

Vladimir Putin: That’s a large team, 136,000.

Anton Drozdov: It’s actually smaller than that of the tax service. We have representatives in every district and are therefore able to reach each person. The tax service has inter-district offices. But we have front offices which serve people, and not just perform general functions.

Vladimir Putin: Right. Now let’s hear our colleague’s evaluations of the situation in the regions.

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Vladimir Putin’s closing remarks:

Over the course of our discussions today, we’ve seen that transferring the right to collect insurance premiums from tax to pension authorities has, indeed, taken place and that it’s been quite successful. The Pension Fund has done a good job.

I’d like to highlight the attention that Russian governors paid to the support of the pension system. We can see the pension-to-wage ratio rising.  This is a movement in the right direction, and we should join in the efforts to advance it. The task has already been accomplished in certain regions where wages are relatively low. But we need to bring that ratio up throughout the country.

We’re now also witnessing a wider use of high-tech services all across Russia. Please carry on with your efforts to expand it.

I appreciate that you’ve raised some very sensitive issues here today. The most important one has to do with improving legislation that would enable the Pension Fund to work properly. As I said earlier, we’ll certainly bring this up at a Cabinet session so that the quality of public services can be raised and losses can be avoided in dealing with the arrears of insolvent companies. We’ll consider how to reduce our spending to a minimum and create more favourable conditions for the Pension Fund’s work.

We should also consider how to prevent the misuse of so-called maternity capital. We’ll try to find adequate solutions together.

I’d like to address all the regional officials taking part in today’s conference call. Let me thank you personally as well as your staffs for your efficient performance in 2010. I hope that in the years ahead, you will continue in the same vein.

We’ve noted the increase in pension rates and the quality of services. But, obviously, not enough is being done to adjust pensions to rising inflation and consumer prices.

I realise that the Pension Fund cannot possibly solve the problem on its own, but it can do a lot, especially provided that there is efficient management.

And, then again, you can further improve the quality of services available to  people. Some 40 million people use the services of the Pension Fund, meaning that almost a third of the country’s population draws its conclusions about the government from these agencies’ performance based on the quality of services you offer. I hope that you will make the situation still better, and I wish you every success in your efforts.

Thank you!