Vladimir Putin's speech at the forum:

Good afternoon,

Let me start by thanking you for this invitation. I think you are holding this Forum at the right time, because we are about to launch a major joint effort, which should be well orchestrated at the federal and regional levels.

The main goal of the Pension Forum this year is "to synchronize watches", and to make sure that both the federal Government and the regional authorities are fully prepared to implement two major social projects. I'm referring to the planned increase of pensions, and the replacement of the Uniform Social Tax with insurance premiums.

However, to begin with, let me recap the position we are currently in at the end of 2009. We expected our GDP to drop by about 10% due to the world financial and economic crisis, which has dealt a heavy blow to our economy. This is a huge reduction, but now we expect it to be less - around 8%. Nevertheless, this is still a serious blow to our economy.

The federal budget will run a deficit for the first time since 2000. True, we will not suffer the same consequences as during the previous crises, because everything was working well before, and we had accumulated considerable reserves and achieved considerable economic growth. The structure of the economy has changed slightly, although not in the way we wanted. Nevertheless, the positive results of the previous years have allowed us to deal with the effects of the crisis much more easily than in, say, 1998, and have even allowed us to tackle such large social projects as the one we are discussing today.

The first half a year was the worst, but the first signs of improvement appeared from July to August, although it is yet too early to speak of an end to the global downturn.

In recent years, we have talked a lot about the need to increase pensions for the older generation. From the early 1990s until today we have continuously emphasised the need to improve the living standards of the older generation.

This issue has come up because the pensioners' living standards are low. Their incomes are low, and their living standards are poor. Different options for resolving this problem have been proposed, and we are going to discuss one of them today. I'm referring to pension valorisation, which means revaluating retirement benefits earned in the Soviet period. But we fully realize that no matter what option we choose, it will have to be supported financially.

We have already started talking about the principles of reform, which we first discussed publicly last April. Mrs Golikova and I have just checked these dates. We first discussed them in April, and I made public statements on this subject in September.

But guess what? The world financial crisis broke out just as we were adjusting the entire system, at that very moment. And let me repeat: it broke out through no fault of our own. But "we got caught up in it," to use a popular expression. We had to decide whether to suspend everything because of the crisis? There was, and still is, every reason to do so, and we could use the crisis to justify our decision to postpone the project.

However, I decided that this project cannot be postponed anymore, and my colleagues agreed with me. It is impossible to delay this project forever. We evaluated our resources, and decided that we can still do this today in spite of the current problems.

In the beginning of the crisis, we even said that we would abide by all of our social commitments. And we are abiding by them.

By the end of 2009, retirement pensions will increase by an average of 1,628 roubles, or 35%. They will average 6,280 roubles per month. Yet another regular increase in pensions will take place in less than a week, on December 1.

Now I'd like to speak about what should be done.

It was not easy to make this decision during the crisis, as I have just said. We had to postpone the resolution of many other issues that were also high on the list of our priorities.

However, we could not have acted differently. Needless to say, it is our moral duty to guarantee a decent life for the older generations, for veterans and pensioners.

The Government is planning to allocate an unprecedented 10% of GDP to fund pensions and other social benefits in 2010. We are spending less than 3% on defence. Ten percent of GDP is a huge sum for any state and by any standards.

The Pension Fund's Expenditure budget will amount to 4.3 trillion roubles next year, but this will not always be the case. The system should be adjusted accordingly, and we should even out its financial parameters.

The revaluation of retirement pensions, or valorisation, as experts, including those at the meeting, call it, will be launched on January 1. As a result, pensions for the elderly will surpass 8,000 roubles per month. The average increase will amount to 1,100 roubles, and for veterans aged 70 or older it will be much bigger - 1,600 to 1,700 roubles.

Poverty of pensioners will be fully eliminated. Those of them whose incomes are below the subsistence level in a given region will receive additional support.

Tentatively, in this case this will affect 5,700,000 people, primarily those residing in regions with high living costs, such as the Far East, Siberia, and the North.

The heads of the Russian Federation regions and the regional branches of the Pension Fund must take personal control over providing additional social support quickly and fairly.

Time is running short, so exhaustive measures must be taken to identify all pensioners entitled to additional benefits.

As you know, we are meeting today to wrap up our discussion and prevent any slip-ups.

We will monitor the situation closely and in detail. Let me remind you that the first additional social benefits should reach pensioners at the same time as the pensions for January 2010. Some payments for January are due in December, I think.

On the whole, recalculating pensions should be as convenient for citizens as possible. They are elderly people, so they should not have to go to various government offices unless absolutely necessary, and should not be required to submit any additional certificates and paperwork. And if it is absolutely necessary to ascertain data on how long they served, even in this case there should be no queues at the pension offices. Additional staff should be hired and operating hours should be extended.

We have taken another critical decision that affects the foundations of the country's pension system.

Instead of the Consolidated Social Tax, insurance premiums will become another source of additional off-budget funding for social programmes.

The tax rate will be 26% in 2010, the same as in 2009. The deferment will allow businesses to keep additional resources to help them through the crisis.

However, beginning in 2011, insurance premiums will increase to 34%. Even so, certain insurers will enjoy preferential rates until 2015. Who are they?

They are farmers, enterprises run by national organisations of people with disabilities, folk artists, small indigenous communities in the North, and the residents of special innovative technological zones. Everyone understands what I'm talking about. Basically, we want to help the people who need government support the most until 2015.

I have mentioned organisations of people with disabilities, traditional enterprises run by small Northern indigenous peoples, and high technology. So, this benefit will mostly apply to small businesses and high technologies.

We are aware that this will increase the fiscal burden, or whatever you may call it. Be it a tax or an insurance premium, it still means increased payments. But without this increase, we cannot create a solvent and sustainable pension system.

All of us, all those who make decisions regarding these issues - and indeed the whole of society, must decide how to use this money: keep some of it in business or give it to pensioners. I think we are taking what is called a decision worthy of Solomon. We are not increasing the fiscal burden on business in 2010, still a difficult crisis period, and we will use the state financial reserves accumulated earlier to make up for the shortfall in revenues. We are giving a respite of one more year to our business people.

Of course, it would be best, if it could be done, not to increase the fiscal burden at all, because business drives development, but a choice has to be made. This need not prevent us from looking for different ways to offset the growing tax burden. We will continue to keep track of the economic trends and carefully weigh our future options. If opportunities present themselves, we will take decisions that minimize losses for the economy.

Greater emphasis on insurance in the pension system implies that collection of administrative charges will be transferred to the Pension Fund.

The main objective is to avoid creating problems for taxpayers. Preparation for the work in new conditions should be completed in December.

Many doubt whether you will be able to cope, whether the pension funds will be able to cope with part of the burden from the tax system. Your bosses and experts assure me that the quality of your training, your skill-level and the expertise you have acquired in recent years give them grounds to hope that the work will be done smoothly. I very much hope that this will be the case.

In the future the payment of premiums should be gradually synchronized with personal registration of the rights of the insured persons.

The Pension Fund and the Social Insurance Fund must truly assist the insurers in paying insurance premiums in a proper and timely manner.

Rather than penalizing people for the mistakes they will inevitably make at the initial stage, we should help them to correct these mistakes in time.

We must also make transition to the use of electronic technologies. There are ample opportunities for this today.

And of course we should already be thinking about the future and discussing the persisting problems.

For instance, a modern social policy is inconceivable without the rapid development of additional, non-government forms of retirement insurance. We must take advantage of employers' savings and workers' personal initiatives.

The programme of co-financing of voluntary pension contributions is one avenue for further development.

I believe it is time to look at how well the accumulation mechanism fits into the system of mandatory pension insurance. We must get a clear answer to what stands in the way of effective investment of pension savings and why private pension funds are not developing as they should.

Of course, we are aware that some problems are fundamental and deeply entrenched. They are connected above all with macroeconomics. Yet these resources can be used more effectively even now.

We should take a hard look at the legal basis of the Pension Fund. For example, the Statute on the Fund was adopted back in 1991. It is clearly outdated, and does not take into account present-day realities.

Colleagues,

In conclusion, I would like to stress that we have taken very important and necessary decisions, and have committed considerable resources to establishing an effective pension system and ensuring a decent life for elderly people.

I have mentioned the figures: 10% of GDP, or 4.3 trillion roubles. This is a huge amount for the state. But the average pension will be 8,000 roubles. This is not actually all that much, but it is still something, and it is a major increase on what people have today. All this should be handled competently.

The challenge facing us is to implement the plans so that they have a real effect on every person's life. Great responsibility rests on all of us. Please bear it in mind.

Thank you, and I wish you great success.

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Vladimir Putin's closing remarks:

Mr Fedun (Leonid Fedun, vice president of LUKoil and vice president of the Russian Union of Industrialists and Entrepreneurs) has brought up many interesting and important issues. Of course, the most important of these issues for business is the tax burden. But it should be said here that this is not the only approach to developing the economy. What about modernisation, cost saving and technological innovation? All of this must also be done.

Reducing the tax burden is a good idea. It doesn't take a genius to realise that. But it also cannot be reduced ad infinitum. But the Government must still be able to function fiscally and fulfil its obligations in a number of areas - the pension system, defence, free medicine and so on.

At the same time, we must spend some time thinking - and we are thinking, and we will certainly act, moving cautiously towards lowering the fiscal burden.

Using pension savings for economic development is also a very good idea. This is done throughout the world and it is done effectively. We only need to make it so that these contributions and investments are reliably protected, and that they will be beneficial to everyone involved.

By the way, if you noticed, I talked about this at the United Russia Party Congress. We talked about the decision to use part of the funds from pension savings currently managed by Vnesheconombank for purposes of repaying mortgage debts, in order to reduce the mortgage interest rates to 10-11% next year, and to continue the trend and reduce these loans to 6-7%, or maybe 5%, in the future.

And, finally, let us discuss a very important issue - the saving system. Of course, we will expand it in the future. But it is clear that it will work effectively only if we can ensure good, stable and favourable macroeconomic indicators.

The savings system cannot operate effectively if there is high inflation. What would we there to save if inflation renders all savings useless? Therefore, we must by all means monitor macroeconomic parameters.

In this context our efforts to control budget expenditures are also significant. In this regard, of course, our decisions to raise pensions can be somewhat contradictory, because we are increasing government spending. But at the same time, this is stimulus for development.

The most important thing here - and the business representative said this correctly - is consumption. We can invest an infinite amount of money, but if there is no demand for goods and nothing is being bought, we're still at a dead end in terms of development. We need to increase development, investment and consumption all at the same time.

And increasing the incomes of pension-age citizens is certainly a step in this direction. Because - and this was also stated correctly - pensioners do not normally buy expensive, imported things. As a rule, they buy low-cost, Russian-manufactured goods.

The 150% increase of our pensions compared with 2007 is very large. The replacement rate was 25%, and will be almost 40%, to be exact 39.7%. Pension growth in 2010 compared with 2009 will average almost 46%. And, as we have said many times, pensions will account for 10% of the country's GDP. That's a lot.

We will maintain pension payments at an appropriate level, but we will also adjust the system in such a way as to make it more balanced.

It is necessary to adjust the entire pension system. The collection of insurance premiums will be transferred from the tax system to the pension system, and by doing so we must avoid breakdowns and overloading the economy with the fiscal burden, and we must also restructure proper relations between the federal government and the regions.

All of these problems are barely surmountable when taken together, because some of them directly contradict others. We have a good saying - You can't jump over your own head. But in fact, some people do. Good athletes jump 2.4 metres or more - clearly above their own heads. And you and I must do the same with regard to our challenges. And we will do so.

I wish you great success. Thank you.