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    Health minister defends his pension reform proposals

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    Health Minister Mikhail Zurabov said Thursday that accrual assets of state pensions will be kept intact and future pensioners will receive their savings in full.

    MOSCOW, February 15 (RIA Novosti) - Health Minister Mikhail Zurabov said Thursday that accrual assets of state pensions will be kept intact and future pensioners will receive their savings in full.

    Zurabov, unpopular due to the rising cost of healthcare, earlier proposed using pension accrual assets to pay for current pensions as part of a drive to cut the Pension Fund's deficit, and moved to abolish the state accrual system by 2013.

    The initiative met with strong criticism from the economics ministry, the ruling United Russia party and parliament.

    "The accrual part of the pension is the money that an employer pays for an employee," Zurabov said. "I do not propose abolishing it."

    He explained that his proposal is designed to encourage Russians to transfer their pension contributions, now run by state-controlled Vneshekonombank, to private investment companies or pension funds so that they do not lose value over time due to inflation and the rising cost of living.

    The minister said that since the beginning of pension reforms in 2002, only 4-5% of future pensioners have transferred their accrual assets under the management of private investment companies or independent pension funds, which indicates that Russians are simply not ready to use the accrual system effectively.

    "Until an average Russian citizen is ready to take responsibility for investment [of pension assets], the state will continue to adjust the value of pension assets according to the inflation index," Zurabov said. "When people are ready, they can take the money and transfer it anywhere they want."

    The government is to consider the new initiative in April, but the move has been already harshly criticized by a number of officials and lawmakers.

    Economics Development and Trade Minister German Gref said earlier this month 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.

    But Zurabov downplayed Gref's proposal saying that the mechanism of state guarantees for this kind of investment has not been developed.

    He also said that the introduction of a unified social tax, which is used to pay state pensions, was a mistake.

    "We have gotten ourselves into a stalemate by introducing the unified social tax," Zurabov said. "We have completely discouraged our citizens [from paying taxes] and failed to eliminate practices of paying salaries 'under the table'."

    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 2006, 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 for health insurance purposes.

    The average state pension in Russia rose 15.3%, year-on-year, in 2006, to 2,726 rubles (about $103) per month, the country's top statistics service said early February.

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