STUMP » Articles » Russian Retirement Age Raised Past Death? Let Me Actuary-splain... » 21 June 2018, 05:43

Where Stu & MP spout off about everything.

Russian Retirement Age Raised Past Death? Let Me Actuary-splain...  

by

21 June 2018, 05:43

When I saw this idiocy, I knew I’d have to comment on it.

From the thoroughly discredited Newsweek:

RETIRE NEVER? RUSSIA SETS AGE OF RETIREMENT AFTER DEATH

So, let me stipulate that those who write headlines for these type of publications are often not the writer of the article.

So let’s look at the article:

Dmitry Medvedev, the Russian Prime minister, announced Thursday a proposal that the Russian state pension age be raised for men from 60 to 65 by 2028 and for women from 55 to 63 by 2034.

The life expectancy for men at birth in Russia is 65.3 while for women it’s 77.1 according to 2017 data from the CIA World Factbook. Dmitry Peskov, a press secretary for Russian President Vladimir Putin told Interfax, “In the Russian Federation, there have been changes both in terms of demography and from the point of view of the level of economic development, changes in the international state of affairs. No country exists in a vacuum.”

Let me stop to make one observation: the gap between men’s & women’s life expectancy in Russia is ginormous. 12 years is much larger than the gap seen in many other countries – it tends to be more on the order of 5 years, which is substantial, but not as substantial as 12.

But back to the article:

The Russian government was criticized by citizens for trying to bury the announcement while people were distracted with the 2018 World Cup which the country is hosting. “While everyone was busy with the opening of the World Cup 2018, Medvedev announced the pension age in Russia should be increased,” one Russian citizen tweeted. “I remind you: 43% of males in Russia will not live until their retirement age!” he said in reference to data from The World Bank.

That sounds accurate to me.

“Why do you need a pension if you won’t live to see it?” another Russian citizen tweeted.

Medvedev has pushed back on criticism of the raise in age as a practical measure. “People these days not only live longer, they stay active longer too. A retirement-age person 30 years ago and today are simply different people,” he said in a cabinet session according to The Moscow Times. “Many in this age are full of strength and the desire to work.”

Look, the reason you men aren’t living to see it is because you’re drinking yourselves to death. Now, I am deep in a project that is having me dig up info about anti-vodka campaigns in the USSR, but it’s not clear to me those were all that successful. The men would kill themselves drinking wood alcohol, just like many people in history, if legal booze was banned.

Anyway, the text of the article itself is reasonable. It’s only the headline that sucks.

But they weren’t the only one to get it wrong in the headline:

The Kremlin Thinks Five Years of Retirement Is Plenty

Russia is said to plan to raise retirement age to 65 for men

Long-delayed overhauls seen key to budget stability, growth

Vladimir Putin promised Russians this week that he would make retirement richer. What he didn’t say was that he’s going to make it shorter, too.

The Kremlin and the government have agreed on the outlines of a plan that would see the retirement age for men raised by five years to 65 and for women by eight to 63, according to two people familiar with the preparations who spoke on condition of anonymity to discuss confidential matters. The changes could begin as early as 2019, phasing in over a period of five years or more.

The current ages are among the lowest in the developed world, but Russia also lags in life expectancy, especially for men, [b]currently 68[/b]. By 2024, when the pension-age increase could be fully imposed, government forecasts put life expectancy at only 70 for men and 80 for women. The resulting five-year retirement period for men would be among the shortest in the developed world, according to a Russian government institute.

Let’s take this apart in pieces: first, what is life expectancy, and which one should we be using?

LIFE EXPECTANCY

Life expectancy is the expected value of the number of years an individual will live from a given age (assuming they survived to that given age).

Life expectancy may be calculated based on given information, such as sex, smoking status, year born, geographic location, etc.

So what does “expected value” mean? It’s the probability-weighted average of the values.

We all know that people don’t live to life expectancy from birth and all die right then. Some die younger, and some die later. That “some die later” is really important when it comes to retirement.

You can have two populations with the same life expectancies from birth, but very different distributions of when death occurs – such as if you have increased mortality at young ages due to fatal stupidity, a pandemic, etc for one population, but not another.

But the second part is what’s important: usually you hear about life expectancy from birth — but that’s not relevant when you’re talking retirement.

If the person dies before they reach working age, then it’s not relevant for setting retirement policy. That’s clear. So life expectancy from age 20 or somewhere around there would be more pertinent.

This isn’t such a big deal now, as child/young adult mortality tends to be very low. But if you’re looking at historical policy on retirement age, you need to factor in the very large impact of child and especially infant mortality.

Example: let’s say that you have a situation where 10% of people die before they turn 1, and if you get past age 1, your expectation is to live to age 70.

The life expectancy in that case will be roughly .1*0 + .9 * 70 = 63.

10% dyiing in infancy reduces the overall life expectancy 7 years — though if you get past age 1, you’re not too badly off.

So the life expectancy from birth really doesn’t give a good idea for the needs of Russian retirees.

RUSSIAN MORTALITY

I’ve done this before, but check this comparison of life expectancies out:

That is not a good historical trend, for both Russian men and women, though obviously, male mortality took a much worse hit in the post-Soviet era.

Let us look at the distribution of age at death in 2014:

I got my data from The Human Mortality Database — that’s a calendar year, not cohort, calculation, but let’s ignore that for now. You can see that the Russian male death distribution is “fat” – it’s smeared over a lot of years – while female mortality looks more like the distribution you see in developed nations: a big peak centered in the 80s.

Here are some historical survival curves, if you really want to be shocked:

The death curves for 1959 and 2014 are almost the same past age 50. The 1995 death curve is worse than the 1959 curve everywhere.

Note that age 55 is over the 20th percentile in 2014 — that means fewer than 20% of Russian men die before age 55.

Age 60 is about the 35th percentile — so 65% of Russian men survive past age 60.

Age 70 is past the median — over half of Russian men die before age 70. This accord with the earlier articles. So far, so good.

The question is: what is a state retirement for? (like Social Security) I posit that the purpose is to prevent senior poverty, not that one gets to party heartily. If one wants to party, then one saves up extra money and can retire earlier or more lavishly.

That about 40% of Russian men wouldn’t make it to age 65 does have an effect on the cost of the pensions, but let’s see how long they expect the retirement to last.

EXPECTED RETIREMENT LENGTH DEPENDS ON MAKING IT TO RETIREMENT

So there are two pieces to the retirement plan puzzle: the probability of making it to retirement (as seen above), and the expected amount of time in retirement if you do survive that long.

So now we want to look at life expectancy from age 65. Well, expected age at death, which isn’t the same thing, but it’s easier for most people to understand.

So there you go – if they manage to make it to age 65, Russian men can expect to live about 12 – 13 more years. Yes, it sucks that their 2014 results are basically at the same level as 1959.

But even in 1995, during some of the worst male mortality in Russia, there was an expectation of 10 additional years past 65… if only the men lived that long.

Underlying spreadsheets here.

THE POLITICS OF RAISING RETIREMENT AGES

Now, that’s all very well to talk about math, but all things being equal, most people like getting money sooner, so even if they’re not really placing retirement age past death, it still is quite a bit higher than currently. A lot of Russian men do die between age 60 and 65.

So the theory is that the Russian government is making this announcement during the World Cup on purpose, as the populace would be distracted (and as they’ve got the troops to crack down on soccer hooliganism… which can also be used against demonstrators. Hmm.)

Obviously, cutting a benefit (which this does by putting it off), is never politically popular, even if that’s what is needed for a country to remain fiscally stable.

So there is explicit jockeying going on. I’ve seen this play out over lots of countries, not just Russia or the U.S. I keep a thread on retirement age changes at the Actuarial Outpost, and in many cases I see age hikes get rescinded as the prior politicians who were ousted for their unpopular votes get replaced by those who decide we need to go back to the unsustainable status quo. If Russia, with their men dying at relatively young ages, on a par with 1959 mortality (YEESH), doesn’t have the wherewithal to support 60-year-old retirees, I highly doubt Poland, Greece, etc. can either.

Warning on the Actuarial Outpost thread: it goes back to 2009. But there’s only about 500 posts in there, so it’s not so bad.

Here is additional coverage on the situation:

They’re also raising a tax, so all of this sounds like the Russian government is feeling a fiscal pinch.

Should be interesting to see how this plays out — as I said, I’ve seen this sort of thing in Brazil and other countries — sometimes it does take the money running out (a la Greece) so options are constrained, as they say.


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