Pensions: who will pay more and who goes on “vacation” later

In 2017, as stated in the government in Ukraine can earn accumulative tier of the pension system. So, in addition to the Single social contribution (ERU), Ukrainians under the age of 35 years will have to pay an additional fee – to a personal retirement account. However, experts say that the innovation this year and not work. In addition, Ukrainians are waiting for other changes, including “modernizing” of pensions, increase the minimum amount of ERUs and possible revision of age of retirement for those who have not gained the minimum of insurance. The website “Segodnia” found out what pension changes are waiting for the Ukrainians.

Why a funded system might not earn

Ukrainians in retirement receive no less than 1247 UAH, in 2017, according to the draft budget for this year, the minimum amount will increase to 1400 hryvnias. However, even after all allowances of the pensioners remain below the poverty line, and Pension Fund – with a “hole” in the budget of 145 billion hryvnia at the end of this year. Officials are sure to pensioners receiving more working Ukrainians must withdraw their salaries from the “shadow” and in good faith to pay taxes.

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.

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. These funds will be accumulated in personal accounts. Says Deputy Prime Minister Pavlo Rozenko, the new system will work this year, the law is already in Parliament. “Our position regarding the reform of the pension system in Ukraine is now fundamental, and the introduction of a funded system of pension payments is our priority,” — said Rozenko.

Today’s retirees, the reform will not affect, however, all Ukrainians under the age of 35 will have in 2017 to pay extra 2%, and 2022 – 7 percent. Ukrainians older than 35 but younger than 55 years may voluntarily join the funded system and pay contributions.

Photo: archive

An expert in the field of pensions Galina Tretyakov is sure that the accumulated funds are “retirement” will be “working” on the economy of Ukraine. “My argument in favor of a funded system is very simple. If you are running a solidarity system, to ensure the replacement rate of 0.6 (i.e. the pension will be at 60% of the minimum wage – Ed.) running generation need to deduct 32-36% of salary. And in order to provide the same replacement rate under the funded system you have to pay 0,12-0,17% of salary. We propose to leave the joint system and to introduce a funded while on a small level,” – says Galina Tretyakov.

However, the opinion Tretyakova not shared by all her colleagues. Senior researcher of the Institute of demography and social studies Lydia Tkachenko is sure: at the moment it makes no sense to start a savings system, moreover, the expert believes that there is no possibility to do it in 2017 not.

“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. There were allegations that this year’s cumulative level starts, no one will remember. I’m not saying that there should be preparatory work, established infrastructure, should be generated a cumulative level,” says Lydia Tkachenko.

“Of course 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,” – said the scientist.

According to the expert, Ukraine does not to run the mandatory funded tier of the pension system, and instead need to think about how to develop non-state pension funds. “The problem of the second level, why does the IMF not recommend to enter it – that the government did not take on additional responsibilities, “says Tkachenko. If the second level is entered, the state accumulation Fund would not only have to accumulate funds, but to invest them into the economy in order to increase savings of the Ukrainians, or simply “eaten” by inflation.

In an interview, “Segodnya” the Deputy Chairman of the Pension Fund Mykola Shambir was also supposed to run accumulative tier of the pension system in 2017 will fail.

“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. So if we are already in November, perhaps this year it will not work. In addition, there are certain conditions that also need to be performed. In particular, as I said, for the solidarity system. So, to say that you can bridge to the quarry and run funded system is probably impractical. But in the medium term – 2-3 years of that, I think, you can say,” – said the official.

How and who will raise pensions and what else is waiting for the Ukrainians

In 2017 in addition to the indexation of pensions 10.1%, which is on the draft budget, 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.

Photo: archive

However, as the official said, to modernize the pension will by changing the average wage, which is taken into account when calculating pensions. “If we are talking about the fact that in the year we have assigned approximately 450-500 new pensions, of course, all those who were appointed before 2016, are inconsistent with the newly appointed pensions. If we have 12 million pensioners, you can calculate how much we need to modernize. It is clear that each pensioner individually. It is clear that if the updating will be done, will be done for each pensioner, depending on wages and seniority. It is clear that the modernizing not everyone will get a raise, because sometimes due to different bonuses pension is bigger than when modernizing. This also is”, – says Deputy Chairman of the Pension Fund.

Lydia Tkachenko notes: also in 2017, the number of contributors to the ESV may increase. Now this tax is not paid by farmers, some businessmen, notaries. Thus, according to the expert, the 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.

In addition, we discuss the possibility to increase the retirement age for those Ukrainians who lack insurance experience. Recall, at this point men for old-age pension, you must work at least 35 years, and women 30. Those who, for example, lacks two years of service, will have to retire not at 60 and 62.

Another decision that will have an impact on the pension system – increase of the minimal salary in half. So, Ukrainians from January 2017 to twice raise the minimum wage. Along with wages will rise, and contributions to the Pension Fund. According to the Minister of social policy, 40% of all payers of ERUs declare a minimum salary of 1600 UAH with her and pay contributions. This year, the tax amount along with the salary for the Ukrainians on the minimum salary will increase in two times. Due to this revenues to the pension Fund will increase by almost 15 billion.

“These figures already have submitted to the Verkhovna Rada the draft Law on the state budget for 2017. According to estimates, this figure is 14.8 billion of funds expected to be generated from raising the minimum wage. But I want to say at once that there was not a linear increase of wages is changing its structure”, – says Mykola Shambir.