ABSTRACT
A dynamic process of social security reforms took place during the economic transition in the Soviet Union from 1985 through 1991, and in the Russian Federation during the first two quarters of 1992. It began with Soviet leader Mikhail Gorbachev’s legislative reform of the social security system that brought about both incremental and systemic changes to achieve the following objectives: (1) guarantee a minimum level of income security for all; (2) define a new social contract that would revitalize the Soviet work force; (3) adopt a social insurance model of financing that characterizes social security in market-based economies; and (4) encourage pluralistic 312approaches to complement the state-operated income security system. Despite administrative and financial difficulties during implementation of the new Soviet pension law in 1991, and notwithstanding the final demise of the Soviet Union, these four objectives have been incorporated (with modest revisions) into the pension legislation of most of the former Soviet republics, including the 1990 Russian Republic pension law.
At mid-year 1992, it appears that the Russian Federation is considering a new proposal for social security reform. Some of President Boris Yeltsin’s advisors who favor a further deepening of economic reforms now recommend the partial privatization of social security. They believe that the availability of a private pension plan could help to generate the much needed investment capital for economic development, and have proposed the establishment of non-government pension insurance as an optional pension plan. This proposal signals a new objective of income security programs—that of furthering economic development. Thus, the Gorbachev social security reform that was initiated for the purpose of strengthening the state-operated social security system and its ability to provide economic security for the most vulnerable portion of the population may be evolving into an effort to generate investment capital. The future of this proposal depends on the course and pace of economic reforms, development of the insurance industry and financial market in Russia, the relative competitiveness between private pension plans and state-operated pension programs and, last but not least, the government’s ability to protect the income security of pensioners not only from inflation but also from potential business and market failures of pension funds.
