All the innovations of the pension reform in Ukraine: how to change the life of every Ukrainian

The Verkhovna Rada this week should consider developed by the Cabinet of Ministers of the pension reform. The document in the Rada registered under the naming “On increasing pensions…”, however, the bill in question is not only about improving the old, but on the reduction of new pensions. In addition, will tighten the requirements for entering the “deserved” rest and change the formula by which pensions are calculated. Without reform, confidence in the Cabinet, the situation in the Pension Fund will deteriorate every year. Now for 10 working Ukrainians accounted for almost 12 retirees. And then reduce the single social contribution (tax by which to pay pensions) from 37 to 22% at the beginning of last year, the deficit of the system has reached a critical level, say in the Ministry. The website “Today” figured out how pension reform will change the life of Ukrainians.

All recalculated according to the formula

In the Memorandum with the IMF, the Ukrainian government has pledged to unify the pension legislation. Not all Ukrainians receive payments upon reaching retirement age. Physicians, doctors, miners have the right to retire on superannuation. This possibility, in the framework of the reform, I propose to reduce. Scientists, prosecutors, journalists, law enforcement officers also receive “special” pensions. After the innovation of all Ukrainians (except the judges, MPs, military, and miners) will have equal rights in retirement. At the moment, pensions in Ukraine are considered according to the following formula:

P = AP x KZ x KS x 1.35%

P – pension amount in UAH;
AP – the average monthly wage in Ukraine for the last three calendar years
KZ – coefficient of wages (the ratio of its average country wage)
KS – experience

The average salary in Ukraine is growing every year. And given that the formula is taken into account, the figure pensions every year “obsolete”. For example, the part of pensions calculated based on the average for three years of salaries in 1198 hryvnia, while the average salary in the last three years (2014, 2015 and 2016) – 3764 hryvnia. This leads to the fact that the younger the pensioner, the higher his pension. Analyze the example.

The Ukrainian worked for 30 years, had a salary twice the average and retiring, for example, in 2007. His pension can be calculate by the formula:

1198 x 2 x 30 x 1.35% = 970 hryvnias.

Because it is even less than the minimal pension, the size of the payment “reach” up to 1312 hryvnia. At the same time, the Ukrainian, who also worked for 30 years and received twice the average wage, but higher to retire in 2017, can claim a payment which will be calculated according to the formula:

3764 x 2 x 30 x 1.35% = 3,048 USD.

In fact, two Ukrainians with the same wages and seniority can receive different pensions. One of the important innovations of the pension reform – all have the assigned pension recalculated taking into account the average wage over the past three years. But the coefficient estimates of experience (the percentage that appears in the formula) will decrease from 1.35 to 1%. For those who have long retired, this is good news – their pensions are considerably “older”. And those who are going to retire, the payout will be reduced by 25% (reduction ratio of length).

For example, the pensioner who retired in 2007, received a salary twice the average and worked for 30 years, the payment will recalculate according to the formula:

3764 x 2 x 30 x 1% = 2258 hryvnia.

That is such a pensioner after “modernizing” the pension will increase by almost 950 UAH. But there is a downside. If the pension formula were appointed this year, a Ukrainian who this year goes on a holiday, instead 3048 hryvnia would have received only 2258 hryvnia.

All pensions will rise to 5.6 of the 12 million Ukrainians. The rest of the average salary in the formula had not yet become obsolete, or they made much money. More than 1,000 hryvnia, rich 1.1 million pensioners. Increase from 900 to 1000 hryvnia unable to 487 thousand pensioners, from 700 to 800 UAH 460 thousand. The rest (and more than 3.5 million Ukrainians) the pension will rise from 50 to 700 hryvnia.

New requirements experience: 60 pension will receive not all

The retirement age in Ukraine, as before, will remain at 60 years. However, this will affect not all. To retire, next year it will take 25 years of experience. And every year, this requirement will increase to 12 months. As a result, in 2028 to retire at 60 you need to work for 35 years. Demand in 25 years will be able to perform 85% of Ukrainians, according to the Ministry of social policy. But in 2028-m 35 years time will have only 55% of 60-year-old. The rest will have to work without a pension until 63 or 65.

Read more about how to change the requirement for experience, you can learn by reading the infographic site Today.

Requirements for retirement in 63 years would also increase on 12 months annually – from 15 to 25 years. But to retire at 65, as now, in 2028 only need to have 15 years of experience.

Recall that full these innovations will earn only in 2021. From next year until the end of 2020, the bill provides for state assistance to the Ukrainians, who have reached 60 years of age in the period from 2018 to 2021 and have less of the required experience. By law, they have to wait for retirement to 63 or 65 years, but these few years they can get state aid.

If you do not reach 15 years of service, not entitled to a pension. Instead gosudarstvovanie social assistance. By the way, two missing years of service can be purchased. The cost of the first year of service is calculated by the following formula: minimum salary x 22% x 24 (if one year, if two, then multiplied by 42). At the moment minimum Deposit – 702 hryvnia (22% of the minimum wage). To buy two years of experience, you need to pay 29 568 USD.

By the way, the Cabinet of Ministers estimate how many Ukrainians will have to retire later than 60 years in different years.

Also the website of “Today” in detail wrote about, who will fail to earn a pension to 60 years.

After the reform, pensions will be indexed in new ways

In Ukraine, the pensions increase twice a year – in may and December. The size of the increase depends on inflation, if pensions increased by 10%, and pensions should increase by at least 10% from the minimal salary. 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.

After the pension reform, payments will increase by 50% the growth of the average annual salary for three years + 50% of inflation over the past year. While the increase will be 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.
For example, if innovation were now retiring in 2258 UAH would have increased to 2504 hryvnia or UAH 246. Under current rules pensions this year will increase by only 126 USD.

According to experts, 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.

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).

A “tax” on pensions will cancel

At the moment, working pensioners are entitled to receive only 85% of the payments. The rest remains in the budget of the Pension Fund. The so-called “tax” in the framework of the reform canceled, as a result, the size of pensions for workers will increase by 17.6%. And those in Ukraine – about 600 thousand people. For example, if a working pensioner receives a pension of UAH 2000, after the innovation payoff “grow up” to 2,340 USD.

By the way, at the same time, about the plans to abolish income tax on pensions in the pension reform. Income tax only pay Ukrainians pensions above 10 740 hryvnias. 18% is deducted from the part of pension that exceeds this amount.

“The taxation of pensions is not taken into account, a pensioner or not. If a person works and has a pension greater than 150% of the subsistence minimum for the disabled, he pays 85% of the pension. It’s not taxation, it’s an incomplete payment,” – says senior researcher of the Institute of demography and social studies Lydia Tkachenko.