Introduction of insurance contributions to government extra-budgetary funds causes significant changes to the social security system

15.08.2009

Goltsblat BLP advises that Federal Law No. 213-FZ of 24 July 2009 “On amendments to certain legislative acts of the Russian Federation and on recognition of certain legislative acts (provisions thereof) of the Russian Federation as invalid owing to adoption of the Federal Law ‘On insurance contributions to the Pension Fund of the Russian Federation, Social Insurance Fund of the Russian Federation, Federal Compulsory Medical Insurance Fund and territorial compulsory medial insurance funds’” (the Federal Law) will come into effect on 1 January 2010 (with the exception of certain provisions).

The Federal Law introduces amendments intended to improve the position of pensioners and other categories qualifying for social security by replacing the unified social tax with insurance contributions to government extra-budgetary funds.

  • According to the amendments introduced into the Federal Law “On Work Pensions in the Russian Federation”, after 1 January 2010 the old-age retirement pension may consist of only insurance and cumulative components. The base component of the work pension (RUB 1,950 a month) will be replaced with a fixed basic insurance component of the work pension. For instance, for persons (without dependants) aged under 80, the fixed basic insurance component will be RUB 2,562 a month, for persons aged over 80 or for group 1 disabled persons – RUB 5,124 a month.
    Among the other significant developments is improvement of the mechanism for calculating the old-age retirement pension, in particular, introduction of monetary valuation of pension rights as of 1 January 2002 by converting (transforming) them into notional pension capital, valorisation (raising) of this notional capital by 10 per cent and, additionally, by 1 per cent for each full year worked before 1 January 1991.
  • According to the amended Law of the Russian Federation “On Employment in the Russian Federation”, the pension that can be granted to unemployed persons under pensionable age with no employment possibilities is to be determined in compliance with the standards applied for the insurance component of the old-age retirement pension (the standards of the base and insurance components are currently applied).
  • Similar amendments have been introduced into the Law of the Russian Federation “On State Guarantees and Compensation to Persons Employed and Residing in the Far North and Equivalent Areas”. The regional coefficient for people residing in these areas will be calculated for the fixed basic insurance component of the old-age retirement pension, fixed basic disability retirement pension and survivor retirement pension, rather than for the base component of the work pension, as it is now.
  • Amendments to the Federal Law “On State Benefits to Citizens with Children” clarify how average earnings are to be calculated for the purposes of allocating benefits. The general rule will be a monthly child care benefit equal to 40 per cent of the average earnings on which temporary disability and maternity insurance contributions are charged.
  • Liability for violation of the established reporting deadline and failure by the insured to report has been modified in the Federal Law “On Compulsory Social Insurance against Industrial Accidents and Occupational Diseases”. The current fines of RUB 1 thousand and 5 thousand will be replaced by a fine calculated as a percentage of cumulative insurance contributions.
  • Amendments introduced into the Federal Law “On State Welfare Benefits” establish that, after 1 January 2010, the aggregate material support received by an unemployed pensioner cannot be less than the minimum subsistence level in the relevant constituent entity of the Russian Federation. If the benefits are below this level, the pensioners will receive a new type of social support – extra social mark-ups paid from the federal and (or) regional budget to bring the pension up to the minimum subsistence level in the given constituent entity.
  • The modified Federal Law “On the Minimum Wage” prescribes application of the minimum wage not only for regulating labour remuneration and determining temporary disability benefits but also for calculating maternity benefits and for other assistance covered by the compulsory social insurance system.
  • Extensive amendments to Federal Law No. 255-FZ dated 29 December 2006, which has been renamed “On Compulsory Temporary Disability and Maternity Social Insurance”, determine the system of applicable measures, insured events (temporary disability; pregnancy and childbirth; birth of a child (children); child care until the child is 18 month old; death of the insured person or an underage family member) and types of insurance coverage. The maximum temporary disability benefit (currently RUB 18,720 a month) will go up, depending on the duration of the pensionable service. The maximum maternity and monthly child care benefits will also grow.
  • Changes have also been introduced into the Federal Law “On Individual (Personalised) Record-keeping in the Compulsory Pension Insurance System.” To ensure more efficient recognition of pension rights on personal accounts of insured persons, the insured will have to submit individual (personalised) records on the insured persons to the Pension Fund of the Russian Federation once every six months beginning from 2011 and once a quarter beginning from 2012 (they currently do so once a year).
  • The Federal Law has also introduced numerous other amendments into the legislation of the Russian Federation.

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