Critics say the ministry led by Mikhail Zurabov, unpopular due to the rising cost of healthcare, made the proposal as part of a drive to cut the Pension Fund's deficit, and moved to abolish the state accrual system by 2013. The government is to consider the initiative in April.
But the Health and Social Development Ministry says the move is designed to encourage Russians to transfer their pension contributions, now run by state-controlled Vneshekonombank, to private investment companies or pension funds, which would raise pensions in the country, currently averaging at 1,900 rubles ($72) per month.
Echoing earlier criticisms from the economics ministry and the ruling United Russia party, Sergei Mironov, speaker of the upper house of parliament and leader of A Just Russia, said: "We believe this proposal is absolutely wrong... Zurabov has in fact accepted the failure of the pension reforms he promoted in 2002."
Kremlin-backed United Russia, which dominates parliament's lower house, criticized the idea as fraudulent on Tuesday.
"We will not support the idea behind the pension system reform, as it implies fraudulent schemes," said Boris Gryzlov, party leader and State Duma Speaker.
Economics Development and Trade Minister German Gref said earlier Wednesday that abolishing the accrual system could provoke political unrest in the country.
"I believe it is unacceptable today, when authorities have gained considerable popular confidence. This could bring us back to the 1990s, when people en masse were enticed into schemes which were later abandoned," the minister said.
Gref repeated his proposal to invest pension contributions in blue chips. Pension contributions are currently invested in low-yield government bonds.
Health ministry experts say 95% of Russians have so far opted to remain in the state system, and over 260 billion rubles ($9.79 billion) of pension funds have accumulated on Vneshekonombank accounts.
"Investing in state companies' equity only is a double risk," Gref said.
Sergei Afanasyev, a health ministry official, said the proposed changes provided for more effective investment of pension funds accumulated on state accounts, and accused the economics ministry of creating a fuss around the initiative and attempting to channel the funds to private investment companies.
Afanasyev also said the proposals were not about cutting the Pension Fund deficit, which stood at 88 billion rubles ($3.3 billion) in 2006 and would be offset from the federal budget.
"We propose that people should have the right to invest part of their contributions in the pension system's insurance trust - which we expect to grow faster than inflation," Afanasyev said, adding Russians would still have the right to invest in private investment companies and pension funds. But he said the proposals required further discussions.
The health minister triggered public outrage by presiding over a reform to replace Soviet-era benefits with cash in 2005, when pensioners across the country took to streets facing charges for earlier duty-free benefits.
Zurabov was also at the center of a corruption scandal in November, when seven officials of the compulsory health insurance fund, subordinate to his ministry, were arrested on suspicion of receiving bribes from pharmaceutical and other companies.
Russian media suggested at the time Zurabov could be fired, but President Vladimir Putin only tasked him with tightening control over spending.
