Russia Offers Pensioners One-Time Payment Instead of Adjustment

(Bloomberg) -- Russian pensioners will get a one-time payment of 5,000 rubles ($77) instead of a second adjustment for inflation this year, the government announced ahead of parliamentary elections in September.

They’ll receive the money in January and the payment will cost more than 200 billion rubles in additional budget spending, Prime Minister Dmitry Medvedev said Tuesday near Moscow. The budget deficit may exceed 3 percent this year and the government can’t afford to index pensions against inflation “in the usual way,” he said.

“We understand all too well how prices have risen in 2015, how prices are growing this year and how life became more expensive in general,” Medvedev said. “It has affected everybody, especially those on low incomes and the older generation who live on their pensions, and it’s especially hard now.”

The government increased pensions by 4 percent earlier this year and previously had said it may make a second adjustment depending on the budget situation. Pensions in Russia are usually adjusted by the previous year-end’s inflation rate. Price growth in Russia has eased to about 7 percent this year after reaching nearly 13 percent at the end of 2015. The Finance Ministry is running the biggest deficit since 2010 as the economy endures the longest recession in two decades after the drop in oil prices caused the ruble to slide, squeezing Russians’ incomes and plunging millions into poverty.

“Pensioners who expected an additional indexation will be disappointed, though a one-time payment is better than nothing” in a country where the average pension is about 12,000 rubles per month, Vladimir Tikhomirov, chief economist at BCS Financial Group, a Moscow brokerage, said by phone. “If elections weren’t happening in September, then it’s very likely the question of a second indexation wouldn’t have been raised at all.”

The pension pledge was made as campaigning gets under way for parliamentary elections on Sept. 18 that represent President Vladimir Putin’s biggest test since he returned to the Kremlin in 2012 after unprecedented protests against him. While he retains very high personal approval ratings, the ruling pro-Kremlin United Russia party is far less popular among voters.

To contact the reporters on this story: Olga Tanas in Moscow at otanas@bloomberg.net, Anna Andrianova in Moscow at aandrianova@bloomberg.net. To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net, Tony Halpin, Kevin Costelloe