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SOCIAL POLICYNeither the market nor existing housing legislation require that anemployer provide free housing because a different sort of relationshipis presupposed. In view of the economic ineffectiveness ofresolving the costly housing problem entirely at employer account,the Company is trying to depart from the old practice of providingfree housing and involves employees themselves in funding theirhousing. During the last three years, employee housing costs underwrittenby the Company changed significantly from outright subsidiesto loans.Outright subsidies2003 2004Percentage of outright subsidiesin LUKOIL Group expensesfor employee housing 74% 61%A corporate housing programme now in development prescribes theuse of market economic mechanisms: long-term mortgages and savingsplans. The Company expects to fund the housing programmetogether with employees and is prepared to help first of all those workerswho are willing to contribute to a resolution of the housing problemthemselves.Non-state retirement benefitsUp to the beginning of 2004, the Company had a unified system of corporatepension coverage in which pensions were paid exclusively outof the employer's funds. That markedly restricted growth of pensions,and today an average pension amounts to 1,100 roubles. In December2003, the Company decided to replace its retirement plan 12 . The newplan allows employees to contribute part of their wages to the retirementplan and have their contribution matched by the Company (up to7% of an employees' annual wage). The employee contribution will collectinvestment income which exceeds inflation.The new retirement plan would permit a 60–80% replacement ofincome after retirement compared to only 5% today. That opportunity12Information on the new retirement plan is published on www.lukoil.ru.55