The Cabinet announced the growth of pensions and radical reform: the new pension age and the tax for all

If nothing is done, Pension Fund (PF) in Ukraine will soon collapse, I am sure the Minister sotspolitiki Andrey Reva. Pensions must be financed by tax (ERUs), which pay working Ukrainians. However, these tools are sorely lacking. This year’s shortage amounted to 145 billion hryvnias – it had to be covered from the state budget. Next year for these purposes will allocate already 156,2 billion. To “save” the situation, the Cabinet is planning to conduct a large-scale pension reform. The website “Segodnia” figured out how life Ukrainian pensioners will change in the near future.

That may change

WILL INCREASE THE RETIREMENT AGE. A few months ago, the Minister of social policy Andrei Reva in an interview “Segodnia” announced a proposal to increase the retirement age, for example, to 65 years for those Ukrainians who have little work experience. “If a person has no insurance experience, he needs to go to 60 or 65 it is possible to increase the life? Why he should have the same retirement benefits as those who honestly sticks?”, the official said.

“If a person has no insurance experience, he needs to go to 60 or 65 it is possible to increase the life?”, – the Minister said.

A few days ago at a meeting with representatives of the world Bank, Andrew Reva explained: the idea is to introduce a differential time of retirement. The retirement age will depend on how many years of paid contributions to the pension Fund.

So, the Ukrainians, who most of his life he worked without official registration, will have to change seniority after 60 years, without pension. As the Director of the Institute of demography and social research. M. Ptuha Ella Libanova, many Ukrainians now do not live to retirement. The likelihood of Ukrainian men die between the ages of 20 to 60 years – 40%, while in Switzerland not live to 60 years, only 8% of men.

Photo: archive

On average, men live in retirement (after 60 years) 14.8 years and women 19.9 years. In this regard, I’m sure a scientist, and to raise the retirement age for men is impossible. “If we have a retirement age of 60 years, our men have the chance to live in retirement for almost 15 years. If we retirement age will raise (men – approx.ed.) to 65 years, they will remain to live only 12 years old “, says Ella Libanova.

THE TAX WILL HAVE TO PAY FOR ALL. Currently, of the 26 million able-bodied Ukrainians contributions to the pension Fund are paid only 10 million people. Farmers, notaries, housekeeper, etc. ERUs have the right not to pay. In addition, many Ukrainians of the salaries are paid “in envelopes” (according to GFS, up to 40% of the inspected employers had paid shadow wages). However, even those who do not pay dues, are entitled to social pension. Andriy Reva said that both in Russia and in Belarus, and in Moldova contributions to the Pension Fund paid more disciplined.

As told “Segodnya” in the Pension Fund, at the moment officials are considering the possibility to oblige to pay a tax to the pension Fund of all working Ukrainians without exceptions. “In the world applies the obligation of payment of insurance contributions for the whole working population. We’re still studying this and other methods. But there are methods, such as voluntary involvement, and compulsory payment”, – says Vice-President of PF Mykola Shambir.

Senior researcher of the Institute of demography and social studies Lydia Tkachenko sure significant it will not give results – the deficit in the Pension Fund will remain. “Even if forced to pay minimum payment of ERUs, additional funds are there, but not too large. But all the same they will have to pay at least the minimum pension. Something will give, it should be done, it is a normal step,” – said the expert.

However, the Ministry of social policy believe that “the Central task is to restore incentives, to pay all fees”. “Must be a generational contract. I work pay my dues, my kids work to pay fees. So current retirees his contract fulfilled, and today’s working doing it only 40%. So now the Central task is to restore incentives, to pay all fees. Because it is the main element availability of insurance”, – the press service quoted Minister of social policy.

“Current retirees his contract fulfilled, and today working complete it’s only 40%”, – said the Minister.

INCREASE PENSIONS. Next year in addition to indexation of pensions 10.1% as provided for in budget 2017, the Ukrainians are “modernizing”. Pension plan to increase by an average of 300 hryvnia five million Ukrainians, says the Vice-Prime Minister Pavlo Rozenko. “Details can not tell, because the decision is still pending. But what is the pension modernization? This is, in fact, a solution to the underlying problem, when the newly appointed pension much higher pensions of older pensioners. Modernity involves bring the “old pension” to the new. How this will be done immediately or in stages – this issue is still being discussed”, – said Mykola Shambir.

It should be noted that pensions will rise for all. So, indexation will not apply to pensioners who receive more than the minimum pension (currently 1247 UAH) and continue to work. In addition, for those who receive 1300 hryvnia, Ukrainians pensions in 5000 hryvnia, indexing of 10.1% means a boost of approximately 125 USD (10.1 percent of the minimum pension).

After the pension reform, as stated by Prime Minister Vladimir Groisman, Ukraine plan to create a “fair system”. “We are working to create a fair pension system in the country. Our next step will be dedicated to restoring order in the pension system. We will offer the Ukrainian society a new system, which will enable people to receive a fair pension,” – said Vladimir Groisman.

However, to radically revise the size of pensions will be possible only after we manage to cut the deficit in PF. According to the Ministry of social policy, the expert group will work for two months and then make a discussion on “foreign and domestic partners” the key position in the reform. If nothing is done, according to the calculations of the Cabinet, in 2025, only 8% of men and 10% of women can get retirement pension.

Cumulative level “on the pause” and the unfortunate reduction of the SST

In Ukraine there is the solidarity pension system. Working Ukrainians pay tax to the Pension Fund the single social contribution (ERU). These funds provide today’s retirees.

Photo: archive

Levels of the pension system:

  • Solidary system (ongoing). These funds are awarded pensions
  • Funded system (plan to launch). Part of the contribution will be accumulated in individual pension account
  • Cumulative voluntary system (private pension funds)

The government plans to start a second level system – cumulative. In addition to the ERUs, the Ukrainians will have to pay another tax (from 2 to 7% of salary). These funds will be accumulated in personal accounts.

Lydia Tkachenko said: at the moment it makes no sense to start a savings system, moreover, the expert believes, that is no way to do this in the next year there.

“Of course, will not start. It is possible. In the Memorandum, which was signed by our leaders of the country with the IMF says that Ukraine is going to refrain from cumulative level. The law second level registered for a long time, but there are no dates. The bills were dates, but the bills remained bills,” – says the expert.

Mykola Shambir was also supposed to run accumulative tier of the pension system next year will not succeed. “Parliament is a bill that tells about the introduction of a funded system since July of 2017. Of course, it was filed a long time ago. We can say that the decision about the launch of a funded system to launch should take about a year,” believe in PF.

The main reason for the sharp increase of the deficit of the pension Fund to reduce the interest rate of ERUs. If last year the Ukrainians were given pensions on average 37% of their salary, from January this year, the tax was reduced to 22%. The Ministry of Finance suggested that this will bring salaries out of the shadows, and as a result, the shortage increased by 40 billion hryvnia.

Senior expert of the World Bank Alexei Sluchinski sure that a tool such as PAYG pension system in Ukraine, “broken”. Moreover, according to the analyst, even a funded system cardinally the situation will not be affected.

At the moment, one of the main objectives of the reform: to bring salaries of Ukrainians from the shadows. Without this significantly reduce the deficit, experts believe, will not succeed. Recall, from January 1, 2017 the minimum wage in Ukraine will increase twice – up to 3200 UAH. According to the calculations of PF, the amount of accrued “pension tax” will grow by about 14.8 billion hryvnia.