All the pitfalls of pension reform

The Cabinet of Ministers has registered in Parliament a draft law “On amendments to some legislative acts on increasing pensions”. The document was developed within the framework of the pension reform in Ukraine. However, in addition to the promised increase in pensions, the draft law propose to reduce pensions for those who will go “on a holiday” next year. In addition, officials propose to tighten the requirements for receiving the minimum pension. The website “Today” figured out how to increase payments to Ukrainians and who will get less.

The first of October 2017 pensions recalculated

The size of pension is affected by all three indicators: the average salary in the country, the size of their own salaries and length of service. In the formula of calculation of pension, in accordance with article 40 of the law “On compulsory pension insurance”, is counted as the ratio of own wage to the average for each month and the average salary in the country for three years.

For those who went on “the deserved rest” in 2007, the year before, the average salary in the three years set at 1 197,91 hryvnia. After this figure did not change. Although the average salary in 2014, 2015 and 2016 reached 3764,4 hryvnia.

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In October 2017 all legacy pensions recalculated taking into account the wages over the last three years. As a result, 5.6 million seniors payments will grow from 50 to more than 1,000 hryvnia. However, the Cabinet of Ministers proposes to modernize not just the average three years salary, but also to reduce the assessment ratio experience.

For example, the Ukrainian, who retired in 2007, earned 1.5 times more than the average for the country and worked for 30 years, maybe to 1312 UAH (minimal). After recalculation of pensions, the same will be Ukrainian hryvnia to 1693, that is, at 382 UAH more.

The formula for calculating pension: P = SN * KZ * KS

P – amount of pension
SN – salary (average salary over the three years prior to retirement)
KZ – coefficient of wages (the ratio of his salary to the national average)
COP – coefficient of insurance (each year is multiplied by 1.35% and after the reform – 1%)

This approach is advantageous only for those who have long retired, says senior researcher of the Institute of demography and social studies Lydia Tkachenko. Those who retire in 2017, before determined the amount of the pension based on average salary over the last three years. But taking into account the coefficient estimates of experience of 1.35, and in the new formula, the government proposes to use the coefficient of 1.

For example, before the law came into force, the Ukrainian with 25 years of insurance experience, which has consistently received a salary two times higher than the average, could this year to receive pension at 2540 hryvnia. If the law is adopted, the same Ukrainian can claim a pension only in 1882, the hryvnia. In fact, all the future pensioners want a third to cut payments. This will allow the Pension Fund to save billions of hryvnia.

According to Convention No. 102 of the International labor organization, the pension should not be below 40% of the “previous earnings of the beneficiary”. That is, if you were paid 10 thousand hryvnia, then the pension should be not less 4 thousand. If the law is adopted, at a salary of 10 thousand and 30 years of experience, you can only claim for a pension in 1707 UAH. Ukraine ratified the 102nd Convention last year. Deputy Prime Minister Pavlo Rozenko, which is responsible in government for social policy, ratified personally took the letter to Geneva. In fact, the bill says that the pension should not be below 40% of the minimum wage, and not the previous salary of the pensioner. Note, at the moment, 40% of the minimum wage is only 1280 UAH.

Will reduce pensions for miners. Now they are guaranteed to get 80% of the average wage of a miner, and after the law enters into force, 80% of the national average wage. The wages of miners can be one and a half times higher than the average wage.

New requirements for obtaining pensions

From the first of January next year on a guaranteed amount of pension will be entitled only to the Ukrainians with 35 years of experience for men and 30 for women. If you need the experience there – will be paid the calculated pension, which may be below the minimum.

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For example, if a Ukrainian was a lifetime feature on the minimum wage and worked for 29 years, he can claim a pension at 1310 hryvnia, while the minimum in October this year expected to reach 1373 UAH.

To receive a pension at age 60 in 2018 need to have at least 25 years of insurance experience. Every year the size of the required experience will increase by 12 months, while this figure will not reach 35 years. As stated in the presentation of the Cabinet, this will mean that in 2028 “in time” will be able to retire, only 55% of the total number of 60-year-old Ukrainian.

If in 2018, come retirement age, but there are more than 15 but less than 25 years of service at retirement, you can only claim at age 63. If next year will be 60 years and going exactly 14 years of insurance experience in retirement can go at 65. The Ukrainians, who have not got this service at retirement do not have rights. Instead, they are entitled to social assistance.

Also cancel special pensions for scientists, local authorities, prosecutors, deputies and journalists. Those pensions that are already appointed, will not touch.

Experience will rise, and pensions will be promoting the new

Last year the Minister sotspolitiki Andrey Reva said that missing the experience of the Ukrainians will be able to buy. One month of service in 2017 was worth 704 hryvnia (22% of the minimum wage). Accordingly, 8448 hryvnia per year. However, the bill says that the first year of service will cost two times higher, and the second – half. And you can buy up to two years of experience. Subject to the minimum wage, currently two years of service are 29 568 USD.

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Ukrainians promise to “modernize” pension each year. From 2021, the rate of the average salary, which appear in the calculation of pensions will increase by 50% from its real growth. This increase should not be lower than 50% of the level of inflation. Under current law, pensions should increase by at least 100% of the level of inflation.

In addition, a single social contribution (22% of salary) will be obliged to pay members of farms (for the moment, they have the right not to make contributions). The businesses of the first group of single tax (provide services, repair and manufacture products and have a turnover of not more than 300 thousand a year), increase the rate of taxation. Now they can pay 50% of the minimum payment, and after the law came into effect will have to pay the full amount.