Russia’s long-overdue pension reform is expected to go into effect on Jan. 1, 2002. The change will be an important one, as it concerns everyone in the country — where state-sponsored pensions are often meager, forcing retirees to work after their retirement to supply their income. The new system will allow individuals to save and invest their pension money before the retirement age in order to retire comfortably.

The opponents of the new pension reform say the country is not ready, but President Vladimir Putin and the State Duma are pushing for it. The new pension reform aims to encourage individuals to become less passive about their pension savings, as both state-run and privately owned asset managers will compete for their pension money.

Russia has long been in need of pension reform. The distributive pension system as it is today places the burden of paying contributions to the Pension Fund entirely on the employer. This doesn’t work because companies often evade taxation by underreporting their payroll. With the new savings pension system the Russian government wants to make individuals interested in reporting their full earnings and, consequently, paying their taxes.

The start of the reform is set for Jan. 1, 2002. Valentina Matvienko , the deputy prime minister, is quoted by Interfax at a recent press briefing as saying that the demographic situation today allows for large-scale pension reform and any delay is unfavorable.

The aim of the reform is to bring the pension as close as possible to the subsistence level. Pensioners are given a guarantee that their new pensions will not be made lower than they are now as a result of the reform.

“The pension system that existed in the past did not reflect the individual effort of a person as he worked towards retirement. To tell you the truth, the laws we had before allowed people to work without paying taxes and still be eligible for a pension,” said Elvira Yermakova , vice chairman of the State Duma Committee for Labor and Social Policy and head of the pension-reform working group at a seminar titled “Pension Reform: What’s in Store? How Attractive Are Investment Prospects to Investors, Employers and Employees?” hosted by the American Chamber of Commerce earlier this week. She added that the Russian Pension Fund has accumulated enough financial resources to proceed with the reform.

Now, according to the Minister of Labor and Social Development Alexander Pochinok , after the reform the size of the pension will depend on legal wages, so the greater a person’s legal wages are, the better his or her pension will be. At the moment it depends upon an individual’s earnings in the last two years of their employment history.

Pension reform will begin with the division of an individual pension into base, insurance and savings pensions. Starting next year, if things go according to plan, half of the 28 percent payroll tax that employers now pay to the Pension Fund will form a base pension guaranteed to everyone set at 450 rubles a month. Yermakova said State Duma deputies will review the pension periodically and adjust it according to inflation.

The other 14 percent will constitute an insurance and savings pension. Its size will depend on an individual’s wages, employment history and the conditions he or she worked in (whether they were hazardous, for instance). Two percent out of the 14 percent will be deducted from a paycheck and deposited into a private account. People under 35 years of age when the reform comes into effect will be able to accumulate a savings pension at two percent out of the insurance pension.

According to the chairman of the Pension Fund, Mikhail Zubrabov , the size of an individual’s savings account will correspond directly with the paychecks received during his whole employment history: The more you make, the bigger the premium to your pension.

One of the bills provides for inheritance of the pension savings for close relatives if the person dies before the age of retirement (currently 55 for women and 60 for men).