The Cabinet of Ministers promises to the Ukrainians in the year to start pension reform. In October, if the deputies will support innovation, the assigned pension recalculated taking into account the latest average wage. And 2018 each year, payments will be recalculated. The website “Today” figured out how under the draft pension reform will index pensions to Ukrainians.
As will raise pensions to Ukrainians
Pensions in Ukraine raise twice a year – in may and December. The size of the increase depends on inflation. For example, if prices increased by 10% per year, and pensions should increase by at least 10% of the subsistence minimum for the disabled.
So, last year inflation was 12.4%, and pensions to Ukrainians increased by 16% from the subsistence minimum. According to experts, the main “minus” of such a mechanism – the “leveling”. If a living wage 1247 UAH, and pension increases, for example, 5%, and the retiree who earned a pension of 1,300 hryvnia, and the one who gets 2000 hryvnia, will add 63 hryvnia.
However, and this requirement in 2014 and 2015 are not fulfilled. Due to the difficult economic situation, the indexation of pensions “frozen”. In the draft pension reform propose to completely change the system of annual recalculation of pensions.
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According to the document, the pension increase will not be on the percentage of the subsistence minimum and on a percentage wage growth over the past three years + half of the inflation index for last thD. it will improve one of the components in the formula of calculation of pensions, as a result, retirees will receive increases, the size of which will depend on seniority and the salary factor.
Suppose the reform acts now. With 30 years of experience and the salary of more than 10 thousand hryvnia (one and a half times higher than the national average), Ukrainian could claim a pension in 1964, the hryvnia. The payout would be according to the formula:
The average salary for the prior three year × ratio of own wage to the average × experience × 1% = 3764×1,5×30×1% = 1693,8 the hryvnia.
This year, the pension would have to increase by 10.9% (the average salary, from which pay dues for the last three years has grown on average by 9.5% per year, and inflation last year reached 12.4%). Instead of having to add a percentage of the subsistence minimum, under the proposed system, the pension is recalculated, taking into account that the average in three years wages grew by 10.9%. Then we would have assigned a pension “modernize” would be to 1878 hryvnia
4174 ×1,5×30×1% = 1878,3
In fact, the “increase” in this case is 185 hryvnia. Under the old rules to this pension added to 10.2% of the subsistence minimum, that is 126 USD. The higher salary was a pensioner and the more experience, the faster will grow the pension.
In 2014, in Ukraine, salaries grew by only 5.6% and in the last year of 22.3%. The Cabinet proposes to increase pensions in terms of average growth over three years. If the Ukrainian economy will develop, together with the wage growth at high rates will increase and pensions.
According to Prime Minister Vladimir Groisman, such a mechanism would help to avoid “aging” of the pensions. The ideal option to ensure that the pension level consistent with the size of salaries in the country – to raise them to 100% of wage growth, says a senior researcher of the Institute of demography and social studies Lydia Tkachenko. However, the Pension Fund almost any country such a rule is too expensive.
If the deficit of the Pension Fund is liquidated, the pension will grow faster
The government through the reform plans for seven to ten years to completely eliminate the deficit of the Pension Fund. At the end of this year “hole” will be 141 billion hryvnia, “patch” it at the expense of the state budget. By the way, part of the costs of the Foundation are planning to shift to the state budget will reduce the deficit. For example, due to the state plan to “hold on” pensions of Ukrainians, who, according to the formula get a pension below the minimum.
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“Elimination of shortage does not mean reducing expenditure on pensions in General. In this case, it is rather the redistribution of financial obligations is quite controversial, especially given the changes in the formula. By October of this year, insurance pensions recalculated on the new base salary, the majority of pensioners, they will increase, that means additional payments to the subsistence level will decrease. But if in 2018, 2019 and 2020 will not be indexed for inflation and wage growth, very quickly the effect of modernization will come to naught, and the government will have much more to fork out payments. If indexing will go each year, including the next three years, then, most likely, the PF will never be a surplus,” explains Lydia Tkachenko.
“If in 2018, 2019 and 2020 will not be indexed for inflation and wage growth, very quickly the effect of modernization will come to naught, and the government will have much more to fork out payments. If indexing will go each year, including the next three years, then, most likely, the PF will never be a surplus,” explains Lydia Tkachenko.
The bill says: after the elimination of the deficit is 50% of the growth of the average wage can take in the recalculation of pensions to 100%.
Recall up to 2012 pensions were increased by 20% from the growth of the average wage in the country – for several years this rule of law does not apply. As a result, according to the Ministry of social policy, more than 7 million Ukrainians have calculated the basic amount of the pension is less than subsistence minimum. As explained by the expert organization “Actuarial-pension consultant” Alexander Tkach, officials decided that for the “actualization” of pensions will be sufficient to index the whole amount of the pension to the inflation rate (previously indexed only the part that is within the limits of the subsistence minimum).
Note, the money for “modernizing” of pensions will give us a twofold growth in the minimum wage earlier this year. On how to recalculate payments to pensioners, which has long been out on a “deserved rest”, can be read here. Also the website “Today” wrote, why pensions, which will be appointed after the reform, will be at least 25% lower.
