In Ukraine, for several years actively discussing pension reform, while the situation in the Pension Fund (PF) is only getting worse. After lowering the interest rate of the single social contribution is almost twice the deficit of the PF has reached more than 140 billion hryvnia. In addition, in the country complex demographic situation – the number of employees and retirees reaches a critical ratio. In an interview with “Segodnaya” senior researcher, Institute of demography and social studies Lydia Tkachenko told about the prospects and problems of the Ukrainian pension system.
“The government itself is guilty in this situation”
Last year the Pension Fund deficit had reached 143 billion UAH. Now the ratio of pensioners to payers of social security contribution rate has reached 10 to 12. The Ministry of social policy say that it is a critical situation. How would you describe the state of the pension system?
– The ratio of contributors and pensioners – this is probably the worst. Although the record deficit of the Pension Fund is not associated with this, and the fact that sharply reduced the unified social payment and pension part. It is clear that the deficit cannot be avoided. But of the 143 billion, nearly half of the money is not the deficit of the insurance system, and especially the state obligations which by law must be financed by the state budget. That is 143 billion is the total amount of cash transferred from the state budget to the budget of the Pension Fund, while the deficit of the solidarity system constituted 82.3 billion. the Rest is money that the government in any case had to transfer to the Pension Fund regardless of the situation in the insurance system.
Our politicians are somehow really like to manipulate these numbers. When they want to say that the deficit is large they call the total amount gives state budget to the Pension Fund and when they need to show some other things, then it is called a specific amount of deficit of the solidarity system. In 2017 the deficit will be nearly 72 billion.
– 72 billion is a lot? Some experts say that there should be a certain percentage of GDP, and we have long crossed the state allocates too much money. Don’t you think?
– The government itself is guilty in this situation – our members of the government, our politicians, our members. The government, firstly, has not learned to collect taxes and ERUs, and secondly, doesn’t care that there were any prospects in the economy. Decisions are quite populist and does not financially reasonable. With a reduction of ERUs almost twice what else can you expect? This is not the fault of the pension system as such. It is clear that we have a lot of retirees. Almost 30% of Ukraine’s population – are pensioners. This is due to the fact that we have the lowest retirement age and many early retirement. But again, the rules set by the government.
The government itself is guilty in this situation – our members of the government, our politicians, our members. The government, firstly, has not learned to collect normal taxes and ERUs, and secondly, doesn’t care that there were any prospects in the economy. Decisions are quite populist and does not financially reasonable. With a reduction of ERUs almost twice what else can you expect?
– We hear predictions that if nothing changes, in 10 years there will be something to pay pensions…
– Pensions are not going anywhere. This is the main function of social protection. Why then do we need a state? State some pension will pay. Another thing, in what amount. Well, when there are several sources of funding pensions. The current situation – I think that is unlikely to be worse.
After all, the economy comes to life a little bit. If it strongly not to kill, she will recover. In General, the economy is more normal to rise than to fall. Can’t be all bad. If pension system not to intervene, she quickly goes on a deficit-free balance. Moreover, in almost any economic scenario. The fact that the costs of the Pension Fund is very heavily dependent on the indexation of pensions. If pensions do not increase, freeze or very slow to index, the Pension Fund quickly out of the deficit. The freezing of pensions (as in 2014-2015) – this is the fastest way to eliminate the shortage, but certainly not the most correct. It all depends on the decision-making.
If ERU is not reduced, it is possible to assume that would be the balance?
We could reach the balance of almost next year, if the growth of pensions was only at the subsistence level. Another thing is that today statutory living wage – this is a dummy value that does really not mean and do not meet either the price level or common sense. This is a completely notional value is taken, we can say, “from the ceiling.” Even the consumer basket, are laid to a set, has nothing to do with the approved cash amount. But if, formally, to take the criterion that pensions were not below the subsistence level for incapacitated, it can be fairly easy to achieve, even with the present contribution.
– When reduced ERUs, including saying that it will help to raise wages and bring her from the shadows. For the year, as they say in the Ministry of social policy, significant results are seen. It can be expected that in a year will be the “exhaust” from a decrease in ESV?
The results, if they were supposed to be once – through “brutishly” salaries. In order to be able to say that the reduction in ERUs adequately reflected in wages, the total amount (salary plus ERUs accrued by the employer) had to remain with the employee. That is, in January 2016 salary plus ERUs in the amount had to be at least approximately equal to the sum of the same quantities if not December, then at least Oct-Nov of 2015 (in December very much a one-time annual payments).
That is, if brutishly happened at once. If employers have the money already left, now we’ll never be able to understand where they are spent and how it has affected employment. Now we see that jobs was no more. Wages last year grew faster than in 2014-2015, but rather, again, inflation. Real growth of about 8-10%.
– We have still a large tax burden on wages. It should be reduced?
– No. This is a very erroneous opinion. Is actually why actually existing pension system and the General system of social protection – and what the state does? It’s all a system of redistribution. It aims to align the level of income to avoid extreme poverty, to avoid any sudden imbalances, gaps in income.
Speaking from the point of view of economic theory, that a lot of arguments and works is about the fact that in fact the employer never pays the employee for all – he will always try to keep in more profit. And the employer almost always in a winning situation. The employee can’t directly evaluate your work. This is only possible relative to some existing well-known criteria and ratios. For example, last year I had such a salary, this year, in theory, should be a little more. But we never know how many left myself, our employer, especially when it comes to the private sector.
The problem of our employers, that they only think about today. Very far they make. Even the big owners of “factories, factories and steamships” behave as if you live only today. So we have such General speculative component of the economy. It is absolutely not conducive to normal growth of wages and of normal proportions in pay.
The problem is our employers that they only think about today. Very far they make. Even the big owners of “factories, factories and steamships” behave as if you live only today. So we have such General speculative component of the economy. It is absolutely not conducive to normal growth of wages and of normal proportions in pay.
– Maybe you could from the point of view of demography is to say, what can we expect in the pension system?
– Our Institute makes predictions in several versions – depending on what will be the birth rate, life expectancy, how they will intersect. It turns out that almost all options will definitely increase the burden on the pension system, will increase “the proportion of” elderly people in the population and the ratio between the number of people of retirement and working age. But apart from purely demographic indicators, it is necessary to take into account that are changing age thresholds. It is obvious that “stretches” the period of childhood: up to 20, as a rule, people do not start to work. Mostly they are studying in schools, colleges – where. With higher education in General are beginning to seriously look for a job after 22.
And we still have the transition to 12-year school, for example. At the same time, we can say that the number of people over the next 50 years will reach retirement age (if he stays at 60 years) will grow. It is a numerous generation, who were born in the 60-80-ies – early 90-ies. The lowest birth rate have been recorded in 1999-2001, and then the indicators not really recovered. Thus, the working age will be composed of minorities, and the pension will go much more numerous generation. Turns out that generations of people who will reach working age and enter the labor market, half are smaller in number than the generation that will reach retirement age. If we leave the retirement age of 60 years, we have significantly narrowed the transition time from childhood to old age.
And what ratio of pensioners to working you can go as a result of such trends?
– This will depend on the level of coverage. Now we have really very few people pay contributions, much remains informal employment, which generally do not pay dues. But if you take a purely demographic ratio, now Ukraine “specific weight” of people aged 60 years and older (the so-called level of aging) – 22%. In 2050, there will be 34%. That is, more than a third of the population will be over 60 years. If you take the ratio of contributors and pensioners, it turns out that now we have 11 seniors on 10 payers, and in 2050, if fundamentally nothing will change in insurance coverage, will have 15 retirees for 10 payers.
– What figure is considered to be really critical?
– It all depends on what the funding system. If the state budget will continue to cover the Pension Fund deficit, everything will be fine.
On retirement age and employment structure
But we have reached the situation when you need to change something? Or everything can continue as it is now?
– Of course, to change something you have to. You can, of course, reduce the number of pensioners. The same increase in the retirement age – it’s what makes? It reduces the number of pensioners and, roughly speaking, shifts, or stretches of the working period. This reduces the period of retirement. We have now women live in retirement on average for more than 20 years. And men, for all that, they have higher mortality rates, more than 15 years. Ie, men who lived to 60 years will live an average of more than 75 years.
– How you consider, what you need to do to somehow lessen the burden on the pension system?
– I think we need to raise the retirement age. It is not for those people who have now retired, and not even for those who are now approaching retirement age. The decision you make today, and start improving later. It is possible to identify a generation, say, born в1990-s – early 2000-ies, and assign them a higher retirement age. These generations are the most small, and yet they will shape the workforce, the burden on the pension system will be “off scale”. If them not to raise the retirement age, will have to raise taxes and the rate of ERUs. When these small generation will retire (this will be the end of the 2050-ies), there will be a slight easing of tension and you can pay them more generous pensions.
I think we need to raise the retirement age. It is not for those people who have now retired, and not even for those who are now approaching retirement age. The decision you make today, and start improving later. It is possible to identify a generation, say, born in the 1990s – early 2000s, and assign them a higher retirement age.
– And in addition to raising the retirement age, what else in your opinion should be done.
– Need to improve the employment situation. It is now the biggest problem. It seems to me that our politicians do not really want to deal with the issues of job creation, because that also requires money. We need to rebuild the employment structure. We have now most people work in the trade. This is nonsense. A country that produces nothing… the Question is, what and whom do you sell? Trade mainly in Bazarno-street form, even e-Commerce – of course, the second option a little better, but right now is a very dark area.
According to research, we now have a quarter of employed people work in the trade. It is not the data of the enterprises – ask people where they work. Gives a very sad picture. From year to year, employment in manufacturing increases, everything else decreases. We have a total of 16.4 million employed persons. Of them hired workers – only 9.5 million Is also a very abnormal structure, because where for employees the employer pays ERUs, as a rule, a much larger amount than the minimum payment that is paid by self-employed.
You said you need to change the structure. In favor of production?
Yes. If you take the European countries, they are usually the first place industry.
– And now we have how many?
– In the industry we have 2.6 million
– State may affect it?
– Why we are so “spread” trade? Because there is no normal taxation. In the trade the easiest to evade taxes – there is no full accounting. We are now in the markets more often do not sell products, which the villagers themselves had made and brought to sell, and some contraband in the best case. Very often Chinese goods – aren’t they supposed to be sold on the market?. It turns out that we have even in such cities as Odessa, Kharkov, Kiev, which has always been the industry, now the largest “enterprise” – huge markets. It turns out that the main industry is trade, and taxes and ERUs there are very few. Because the people who work there, often either do not feature or features as physical persons-entrepreneurs of the first group (retail) with minimal fiscal costs. Trade – this is where you need to take people, because this abnormal situation and the abnormal-time employment. Suffer from this: these very people and system of public Finance that does not receive the taxes.
– But in the industry there a large number of vacancies.
– Yes, and this is a very big problem. The idea is that the state should do this, to think of policy as to redirect people. Now, for example, in Kiev began to demolish the Kiosks, markets are all very well, because is really impossible to pass. But what then happens to these people? Where do they go, what do they do? That’s all you need to solve in the complex. You need to conduct surveys to find out what they would like and could do, to retrain them. It also requires money. But with the present structure of the economy – nowhere.
And we have one of the numerous activity is agriculture. Self-employed work there are only 0.5 million people, mostly private farms, which sells products.
And they also do not pay ERUs?
– Of course, they do not pay the SSC. And anyway, strictly speaking, they do not pay any taxes. We even farming is very poorly developed because of the fact that people simply do not want to register as a farm, because you have to pay taxes, to file reports. And work about the same. So many just do not register. Large areas, production volumes and sales, and did, in fact, do not pay.
Even in industry all is not well. We have many mining companies, and if you take the developed countries, of course, is the processing industry to what is called industry. We also have very little formal employment in the construction industry. Even on large buildings in Kiev, the mass of undocumented workers.
– I understand that all the characteristics of a developing economy?
– Underdeveloped rather. With such a structure does not develop. There can be no development. What is the development of trade? Another market, another kiosk open? There are no prospects. They are simply in these kinds of activities where you don’t break free. If it’s a private farm, they also have no prospects. At best they will be forced to register as a farm or give them some incentives that they register. That is an area where there are no special prospects for development. If you compare with Europe, they have in agriculture can be occupied by 2-4% of the total population.
With such a structure does not develop. There can be no development. What is the development of trade? Another market, another kiosk open? There are no prospects. They are simply in these kinds of activities where you don’t break free. If it’s a private farm, they also have no prospects. At best they will be forced to register as a farm or give them some incentives that they register.
Of course, trade in the European countries employing a lot more people, but still it is not 25%, and a maximum of 10-14% of total employment. Trade has a number of advantages – it’s such a “comfortable” activity for people with not very high education, but with a certain flair. When it’s a small family shop, for example, everything is fine, but it doesn’t have to be solid markets, like the us, where people are on the street year-round.
– But the production and the raw materials were processed as in Europe, need a market. That is, in the future this is only feasible if our business will learn to compete with European and take their place in the world markets?
At least in the domestic market. What we buy in the domestic market of our products? Except that food – nothing more, strictly speaking, not buy. Some, maybe the building materials.
We have consumer power low. We talked with the owner, which is engaged in tailoring. She says: “I would love to buy expensive Ukrainian fabric, but then those clothes will not buy, because it will be expensive”. It is a vicious circle.
There is a term “cycle of poverty”, which means that poverty begets poverty. It’s true, and it is very difficult from this circle to break. But you still need something to do with it. Unfortunately, among our entrepreneurs a lot of dishonesty – outright rudeness, outright fraud. Our business – a real “Scam”, and very few respectable business. The same trade where people understand who is trying to sell this stupid thing. But these merchants usually sell their goods and live of the Commission: on the margin between the minimum price and how many they could sell.
– And then there are some steps you need to take?
– Probably something to do with our politicians, deputies, officials, that they also improved the quality of their work, took the decision really reasonable. Because now, even when accepted some laws, it is very often in the feasibility study, or nothing at all write. You need to learn how to make balanced, confirmed by calculations of the solution, which then will not have to change. And change is not always possible – we must then seek some way out – like “a snake in the pan”.
On pension reform and the situation in the economy
In the beginning of our conversation you said that well, when there are several sources of pension provision. As you think it is necessary now to expand our system a storage level? For example, the world Bank experts believe that now you do not need.
Now there are very big risks that the money is simply stolen. Today these risks are especially large. You see banks are closed one after another, with many cases where money is printed. Despite the fact that the banking market was well-developed component of the financial market in comparison with everything else that we have. Of course, of the pension is very good. But we also have the opportunity to save in voluntary pensions, and the people themselves do not carry money. In private pension funds is 0.8 million people, but mostly they pay contributions from employers. It’s those employers that are either very conscious or for their business through some third hand the money roll somewhere else.
Of course, most of us are such big profits to make long-term savings. If saving up for something, that is mainly on deposits. The deposits, of course, and higher rate, and they are more protected. The Deposit guarantee Fund still pays an amount in the range of 200 thousand hryvnias. Though with time, though with some loss of interest, but people, at least the body of the Deposit will be, if with Bank something happens.
– What do you do that in 15-20 years will retire? The state cannot hope, then what?
– To work with. Where there is no pension system, where people work, how much you can do. There’s no other way. We have figures that offer to cancel the pension system – say, this should do the family, the state should not take the role of the family – children must support their parents. We see that we have the reverse trend: children, even as adults, prefer to receive care from their elderly parents than to help them. And the fact that employers will not increase salaries appropriately, even if you cancel ERUs, is 100%.
– And how much to save at the storage level, so it worked fine to eventually get a normal amount of money which is enough for the number of years spent in retirement?
– Classics of the genre – not to put a large amount, but that is a long time investment. It is believed that it is very good when 40 years a person has accumulated 20 years then lived in retirement. If, for example, 5% of your salary to defer for 40 years, then in 20 years retirement you can afford to spend 10% of your salary.
But you can still expect that this cash amount will increase as there will be somewhere to invest, will go some interest.
– It depends on where they will invest, what would be the percent yield. Himself pension Fund, the management company assets, the audit of these funds, the Bank that holds the money, everyone wants to get their expensive. Can also be all sorts of advisors and many others who wish to earn the money. This principle normally is all the business structures that for nothing or at a loss do not want to work and can’t. We now have on this market pullback – closed and liquidated pension funds, reduced the number of other participants (those same companies asset management). Why? Because when it comes time to make payments, you begin to understand that it is not so profitable business.
– Why wait for pensioners who have already retired? To work they can’t, and even if they want, they are very difficult to find a job in the labour market. Indexing and modernity – can we expect any izmenenii?
– The pension system is a system of redistribution. If you are creating a little income to redistribute nothing special. You need to ensure that the country still grew and grew rich.
– And the promise of modernity – it will affect the overall situation?
It is a very difficult question. Our powers that be did a lot of loud statements. But there was information that in the budget of the Pension Fund, which was established recently, the updating is not incorporated, but only the recalculation of the minimum pension in respect of increase in cost of living. Again, this is a fictitious value even though it is growing, but it also does not show the present level of prices.
– You are talking about indexing?
– Recalculation of pensions due to higher cost of living – the money planned. To carry out modernization of pensions, according to our calculations, it turns out, need to find money about 70 billion UAH. And it is not quite complete modernizing.
– Earlier that can be considered as poor those who cannot afford the consumption basket, which now is 3200 UAH. Now is it true? And how many disasters this year compared to last? There are calculations, how will change the ratio?
– We do not make such calculations. Actual data on poverty for 2016 yet either. But in General, if we take a relative measure 75% of medial income, our poverty level is almost the same. Maybe this year, in connection with the increase in the minimum wage and changes in legislation relating to wages, the situation will change for the working population. When we talk about relative criteria, there is no longer the measurement is not the absolute level of income and measurement of inequality. In a poor country inequality is much more is the General picture. We sometimes think that we have something special, and we conventional backward country.
If we take a relative measure 75% of medial income, our poverty level is almost the same.
– How long do we remain a backward country?
– We are likely backward country will for a long time. Not that forever, but in fact, all global forecasts for the long term show that even China, which is growing much more stable and higher rates still on the level of GDP per capita is almost never catch up with those States.
We will soon be able to catch up with Austria or France, which also are not the richest countries. But even if we take the richest among the European countries Norway because it has oil and gas, looking at how people live there, can not see the difference that they are much richer than in Sweden or Finland, nearby. That is, all the relationships between people, it’s all part of the culture. The economy is part of culture and also relationships between people. Apparently, you need to look for the key to success.