Valorization of pension: what is it, what is taken into account when calculating, coefficient for work up to 91 years

Defining the valorization process for pensioners

The valorization process begins with the recalculation of citizens' pension savings by at least 10% , plus 1% for each year of service until 1991. Working citizens with experience before 2002 who have not reached retirement age participate in the valorization process, but there will be an increase in pension not that noticeable.

Valorization of pensions

Non-working pensioners whose pensions and social benefits are less than the minimum established in the country will receive additional payments. The pension amount is calculated individually and depends on the region, age and length of service. Valorization amounts are multiplied by indexation coefficients, which depend on the time the pension was assigned.

Valorization of pensions

In the past, a citizen's pension depended on contributions earned over the past few years and work experience. If the salary was low before retirement, the citizen received funds taking into account the last five working years, when the salary was higher.

Valorization affects everyone who was officially employed before the start of the pension reform. The program is based on the official employment of each citizen - the longer a citizen worked, the higher the coefficient and the higher the increase.

What does the process of valorization mean?

The essence of valorization is as follows: as of 01/01/02. The Pension Fund has established a certain amount of the estimated capital of the insured person. Capital increases by 10% of the initial value and by 1% for each subsequent year of service until 01/01/91.

For each citizen, the recalculation is individual and depends on the number of years of work. Periods of any socially useful activity are also included in the length of service. There are no restrictions on total length of service.

Valorization is application-free, that is, citizens are not required to write an application to the Pension Fund for a revision of capital. Recalculation is carried out automatically for all pensioners based on documents in the personal file.

The presence of the pensioner himself may be necessary if he himself expresses a desire to submit additional documents to the Pension Fund about years of work that were not declared earlier. This applies to those who have worked for 45/40 years (men/women).

In Soviet times, this length of service was considered the limit when assigning pension amounts. Funds for valorization from the Federal budget amounted to 500 billion rubles.

The purpose of valorization is to increase the standard of living of pensioners. In Russia it is held from 01/01/10. to this day to all persons who have retired. The procedure for increasing pension benefits is carried out by Pension Fund employees annually. To do this, all information about the estimated capital of citizens of retirement age as of 01.01 is raised. current year contained in the database.

Why was there a need for valorization?

After the pension reform, the contributions of persons who became pensioners before 2002 and those who received pensions later were practically equal and did not cause problems. Over time, the gap has become much larger: people who have taken out a pension these days, in addition to accumulated contributions, receive insurance premiums. The employer is required to transfer these contributions to the citizen’s account.

Valorization of pensions

The length of service was the same, but citizens who retired in 2002 or later received more than citizens who worked before 1991 because in the past, pensions were calculated using a special indicator based on data on the average salary throughout the country.

While it is not necessary to provide paperwork for every year of work, it may increase your pension contributions.

In order for pension calculations to be carried out fairly, it was decided to index the pension contributions of persons who worked before 2002 , even if they have not yet reached retirement age. Those who do not have documents on employment between 1991 and 2001 must prove the presence of at least some work experience before 2002.

Who will receive an increase from valorization

The average amount of pension increase for older citizens is 1,100 rubles, for younger ones – 700 rubles, depending on length of service.

Valorization of pensions - what is it?

The concept of valorization is most often used in economics to mean the revaluation of goods and services. If we talk about the pension system, valorization should be understood as the process of revaluation (increase) of the estimated pension capital (RPC) for citizens with work experience before 2002.

Valorization was introduced by Federal Law No. 213 of July 24, 2009, which came into force on January 1, 2010. Before the 2010 reform, pensions in Russia were assigned taking into account two indicators:

• average earnings;
• total duration of working activity.

However, the pension reform radically changed the entire accrual procedure. After the innovations came into force, the amount of payment began to depend on the insurance contributions paid for compulsory pension insurance (OPI) or insurance contributions made personally by citizens. Pensions calculated under the old system were very modest. In order to increase these small payments, the decision was made to valorize.

The essence of valorization is to increase the pensions of citizens who worked during the existence of the Soviet Union. At the same time, valorization applies to those citizens who have work experience before 2002.

Valorization should not be confused with indexation and recalculation. Each of these terms has its own legal meaning and different calculation procedures:

• the indexation procedure is aimed at increasing pensions in accordance with rising prices in the country;
• recalculation is possible only when circumstances affecting its size have changed (for example, disabled citizens have become dependent on a pensioner).

Differences between valorization, indexation and recalculation

All three concepts mean an increase in the amount of pension payments, but the conditions, regulation and method of receipt are very different.

Valorization

The size of the increase in pension depends on the length of service earned before 1991. The point of valorization is to equalize the pensions of people who worked in the USSR. Affects citizens employed before the start of the pension reform in 2002. The process occurs automatically; citizen participation is not required.

Recalculation of pensions taking into account valorization

Indexing

Indexation is carried out automatically for pensioners to increase purchasing power during inflation. Indexation depends on price increases ; the government independently determines the coefficient. Pensions of federal civil servants and astronauts are indexed as monetary remuneration increases.

Recalculation

If circumstances affecting pension payments change, recalculation occurs. If the pension authority has all the documents confirming the citizen’s rights to a pension, the recalculation will occur automatically . According to Article No. 142 of the Federal Law, recalculation occurs on August 1. Additional paperwork is required if:

• the pensioner has reached 80 years of age;
• a higher disability group has been established;
• the number of dependents has increased;
• The pension authority mistakenly did not take into account the pensioner’s length of service.

On the meaning of the concepts of indexation, valorization, recalculation

All three concepts operate in parallel in the pension legislation system, because they have completely different meanings. Their only similarity is that they are used to increase pension benefits. Their differences lie in the accrual mechanism and their legal basis.

1. Indexing is the procedure for changing the index of a value. In this way, the decrease in the purchasing power of pensioners is compensated for by the inflation rate. The indexation percentage is set by the government and brings the size of the pension to the level of the consumer basket. As a result of its implementation, payments to pensioners should, at a minimum, reach the level of the consumer basket. For some categories of pensioners, indexation is carried out in the form of an increase in monetary remuneration - for astronauts and civil servants.
2. Valorization - an increase in the size of the pension, which was lowered in Soviet times, is carried out for citizens with any length of service until 2002. The increase is carried out without the presence of citizens. The amount of the bonus depends on the length of service earned before 1991 and the regional coefficient, if any.
3. Recalculation is carried out if circumstances have changed that influenced the amount of the pension. It is necessary to provide documents that confirm the changes. For example, recalculation regularly occurs for working pensioners, since as their length of service increases, the number of employer contributions to the insurance part of their pension increases.

Basic rules and valorization rights

The main rule of valorization is automatic recalculation based on the citizen’s official work experience before 2002 The pension authority has information on the amount of pension contributions as of January 1, 2021.

Rules for valorization of pensions

If a citizen worked unofficially, but can confirm this with other documents, he must send them to the pension authority for review.

Citizens officially employed in the Far North receive an increased valorization coefficient. It ranges from 1.4 to 1.9%, varies from region to region and leads to higher pension payments.

Valorization rules

Pension Fund employees are involved in calculating pension capital. At the same time, every citizen has the opportunity to make calculations on their own. Then you will be able to roughly imagine how much the benefit supplement will be in the future.

Information on the amount of settlement capital is contained in the Pension Fund databases. Persons performing labor activities during the Soviet era have work experience up to 2002.

Since the beginning of 2002, this figure has increased by 10% . Additionally, the increase occurred by 1% for each year worked after 1991.

The average capital value in the country was 1,430 rubles. This amount is indicated per month. In each situation, this indicator has an individual meaning.

It is affected by:

• the age category at which the citizen retired;
• year of receiving pensioner status.

All indexations carried out in the country throughout the year apply to increased payments. To recalculate, you will need to contact the Pension Fund branch. This is necessary if new circumstances have arisen or new evidence of length of service has appeared over past periods.

What is taken into account during valorization

Employees of the pension authority take into account certain data when carrying out the valorization process.

Including:

• the year in which the citizen was born;
• period of accumulation of insurance experience;
• earnings relationships at different times;
• average salary in the country after 2002;
• the year in which the payments were made.

Experience can be accumulated before 2002, before 1991 or after 2002.

Basic terms of valorization

Calculating valorization is not difficult if you understand the basic terms:

1. The work experience coefficient means the period of official employment until 2002. If the work experience is 25 years, the coefficient is 0.55. For 1 year, 1% is accrued, but not more than 75%. Interest rates are reduced if the work experience is less than 25 years.
2. Conversion - recalculation of length of service into cash equivalent for citizens working before 2002.
3. Pension rights - data on wages and insurance accruals that determine the insurance part of payments.
4. Estimated capital is the amount of pension contributions for 2002. All officially employed citizens who have received a pension certificate have an estimated capital. When a citizen begins to receive a pension, the capital becomes the insurance part of the payments.

Calculation of pensions taking into account valorization

About the rules of valorization

The calculation of pension capital is carried out by Pension Fund employees, but every citizen can do this independently and roughly imagine whether it is possible to hope for anything at all in terms of increasing payments.

All data on the estimated capital of citizens as of 01/01/02. are in the PF database.

Everyone who worked in the USSR has a certain number of years of experience before 2002. From 01/01/10. this capital is multiplied by 10% one-time, then another 1% for each full year after 1991.

The national average increase in capital in pension accounts was 1,430 rubles. per month.

In each case, it is individual and depends on the age and time of retirement:

Increased pensions are subject to all indexations carried out throughout the year. To recalculate the amount of pension provision, you must submit an application from the Pension Fund.

If new circumstances have arisen, new documentary evidence has appeared about the existing experience for previous years, which were not taken into account at the time when assigning pension payments. In other cases, valorization is performed automatically.

Concepts used in recalculation:

• Conversion - transformation, transfer of pension rights into capital for those who were employed before 2002.
• The work experience coefficient is the entire time period of work until 2002. It is calculated from 0.55 with 25 years of experience, to 0.75 with more work experience. For 1 additional year of work, 1% is added, but not more than 75% in total. If the experience is less than 25 years, then the percentage decreases proportionally.

Calculation examples:

• The citizen has 34 years of work experience, 33 in Soviet times. An old-age pension was assigned in 1992, and he has not worked since then. His capital will increase by a total of 10% from 01/01/10. and by 33%. Total - by 43%. The insurance part of the labor pension will be increased taking into account these percentages.
• The citizen retired due to age in 1985 with a total experience of 40 years. To the Pension Fund she provided documents on her work activity for 12 years until 2002 and 7 years until 01/01/91. In this case, the capital increase will occur in the amount of 10% and 29% during work in the USSR. As a result, there will be an increase in pension capital by 39% and a recalculation of the insurance part.

When valorizing, the Pension Fund takes into account the following conditions:

1. Year of birth of the citizen.
2. Insurance period:
   until 01.01.02.
3. until 01/01/91.
4. after 01/01/02.
5. The ratio of wages in different periods.
6. Year of granting the old-age pension.
7. Average salary in the country after 01/01/02.

How to calculate the amount of pension payments

The Pension Fund will independently calculate the amount of your pension upon reaching retirement age. It’s easy to find out this amount; just count two main numbers:

• how many years worked before 1991;
• how many years worked from 1991 to 2002?

To calculate valorization, there is a formula : the percentage of valorization (in the example it was 30%) multiplied by the amount of accumulated capital. Valorization will affect only those citizens whose pensions were accrued before 2002. The rest receive contributions in accordance with the new pension program.

Calculation of pension valorization

To begin with, take the average salary for 5 years, including the months when no work was carried out. This amount is divided by the average salary in the country and multiplied by the length of service. For all years of activity before 2002, a percentage is added. With work experience of 25 years or more, the coefficient increases.

According to the new program, the main part of the pension is calculated from the federal budget and is the insurance part. Previously, pension increases depended on the level of inflation and rising prices on the market. Since 2010, the amount of contributions depends on the income of the Pension Fund and the average salary in the country.

For example, if the length of service exceeds 25 years for a year, the basic part of the pension increases by 6%, after two years - by 12%. Citizens decide for themselves whether they want to retire later or not.

Rules

The calculation of pension capital is carried out by employees of the Pension Fund, but if you take into account the basic rules for the valorization of pensions, you can roughly imagine whether you should even hope for any payments under the recalculation program. Key points that are taken into account when valorizing:

• All citizens who had work experience during the Soviet period receive a one-time increase in pension capital by 10%, and every year after 1991 there is an increase of 1%;
• Valorization is individual in nature, as it directly depends on the time of retirement and age. Up-to-date information can be obtained from employees of the Pension Fund;
• The increase in the pension amount is affected by all indexations carried out in recent years;
• If there are circumstances affecting the length of service in previous years, and you also have all the necessary supporting documents, you must contact the Pension Fund branch to recalculate your pension. In all other cases, valorization is carried out automatically.

You should not expect a large increase in the size of the pension; on average in Russia it increased only by 1,430 rubles per month.

Concepts used in calculation and recalculation

There are two important parameters that apply to any changes in the pension amount:

• Conversion. This is the conversion of pension rights into cash equivalent according to a certain formula. In this case, all work activity before 2002 is taken into account;
• Work experience coefficient. The entire period up to 2002, when the citizen was officially employed, is taken into account. The maximum value of the coefficient can reach 0.75. If you have worked for 25 years, then its value will be equal to 0.55, and then 1% is added for each year, and with less length of service, 1% is proportionally subtracted.

What documents are needed to recalculate a pension?

Conditions for undergoing valorization

No applications are required; the pension authority carries out all calculations automatically . Documents are needed only if some data has been lost or entered incorrectly; you can deliver the papers at any time.

If any documents are missing, the employer is required to provide copies. If the company no longer exists or it is impossible to contact them, the documents are located in the local archive. Such an archive should be in the city where the work took place. Very small cities and towns transfer documentation to the regional archive.

If the pension authority requires additional documents, they will send a written notice asking you to deliver the papers. If a citizen believes that providing additional documents will affect pension contributions, he needs to come to the Pension Fund and write an application.

An example of calculating a pension taking into account valorization

List of documents that may be needed during valorization:

• passport and copies of pages with information (registration, marriage information);
• amounts of wage payments with dates;
• insurance experience, officially confirmed by documents;
• average salary in Russia after 2002;
• date of retirement.

Insurance accruals for old age, loss of a breadwinner and disability, calculated taking into account the valorization coefficient, can be changed if:

• the citizen was able to prove earnings that were not taken into account in the initial calculation of pension payments;
• if the option for calculating deductions selected automatically differs from that chosen by the citizen.

A citizen can apply for recalculation to the pension authority after the grounds for recalculation arise. Changes in payments are indicated in letters from the Pension Fund of the Russian Federation, or you can go to the Pension Fund and get information at any time.

What is valorization and why is it needed?

In modern Russia, many terms that came from abroad are not clear to the population. Due to their age, it is most difficult for older people to understand new words and concepts. However, if you explain the new term in simple and intelligible language, then it will become clear to a person of any age. explains what valorization is and how this concept applies to pensions.

What is pension valorization?

The term valorization is economic in nature and is of French origin. Translated from a foreign language, the word “valorization” means “to appreciate.”

Now this concept is applied in relation to the revaluation by the state of various payments. For example, social benefits or pensions, as well as in relation to the value of goods, securities and foreign currency.

In order to understand what valorization is, you need to remember a little history. Thus, before the pension reform in Russia, which began back in 2002, pension payments were calculated on the basis of two components.

These were length of service and average salary. Moreover, the last indicator was taken either for a period of 5 years chosen by the applicant, or two years before retirement.

However, the reform carried out changed the calculation procedure - the size of the pension began to depend on contributions that were transferred to the Pension Fund of Russia under the compulsory pension insurance program.

At the same time, the introduction of new norms divided society into two camps - for some, pensions were calculated according to the old rules, and for others, according to the new ones. All this led to a situation where, under the old method of calculating pensions, citizens received smaller amounts.

To equalize the size of pension payments, the Russian authorities decided to valorize pensions. This happened in 2010. Then the authorities carried out valorization of pensions, supporting the action with relevant legislation.

From January 1, 2010, valorization, or, in other words, indexation or increase in pension amounts, was carried out in relation to all pension contributions, regardless of length of service before 2002.

In addition, pension capital was increased by 10% and 1% for each year of service before January 1, 1991.

“Valorization is aimed primarily at those who have extensive Soviet work experience. Those with work experience before 2002 received a 10% increase in their pension capital, plus 1% for each year worked before 1991,” the Russian Pension Fund reports.

Valorization is carried out for all pensions without exception.

As stated in federal legislation, in 2010 there was a global valorization (indexation) of pension contributions. The changes were felt by experienced pensioners, as the amounts of their pensions became much larger.

Since 2015, pension legislation has been changed again. The amendments did not include the concept of valorization. Now the right to such indexation was assigned to those pensioners who had work experience before 2002.

At the same time, the valorization procedure has its own rules.

“Calculated pension capital (RPC) takes part in the valorization of pensions, which takes into account the length of service and the amount of earnings as of January 1, 2002, that is, without insurance contributions. The RIC is multiplied by the total coefficient of indexation and additional increases in the insurance part of the labor pension carried out from the date of assignment of the pension to 01/01/2010. Then the valorization percentage is determined, which is multiplied by the indexed PKK and divided by the number of months of the expected payment period as of the day the pension was assigned,” PFR specialists explain.