How the life of Ukrainians will change after pension reform: answers to key questions

In Ukraine in the first reading adopted the government draft of pension reform. In October, in the framework of the reform, current retirees will recalculate the amount of the payments, and from next year all Ukrainians will retire under the new rules. The website “Today” addresses the major surveys about how the life of Ukrainians will change after the pension reform.

Pensions will grow?

Yes, but not for all and not immediately. The government promises to convert the old pension in October. Of the 12 million boost to payments will receive more than five million people. All votes will be recounted according to the formula: 3764 hryvnia × own salary/average salary × number of years × 1%. As a result, different pension Ukrainians will grow from 50 to more than 1,000 hryvnia. Examples of calculation of old pensions under the new formula can be read here.

This innovation has a downside. Recalculation of this formula allows to increase the pensions of older pensioners because of the fact that their payment was calculated not from 3764 hryvnia, as it is now, and, for example, from 1198 USD. This amount of average salary with which to pay contributions for the last three years. Those who retired in 2007, pensions are calculated based on the average annual salary for 2004, 2005 and 2006. And for those who this year retires, takes into account the average salary in 2014, 2015 and 2016.

Of course, that ten years ago the salary was several times lower than now.
Before the reform in the formula of calculation of pension length of service multiplied by 1.35% and after will be considered 1%. For “old” pensioners revision of the average wage compensates for this loss, but new that before the reform, retirement, given the average wage in 3764, will receive payment approximately 25% lower.
By the way, approximately 650 thousand people will receive a pension at 17%.

This is due to the abolition of the “tax on pensions” for workers. 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%. For example, if a working pensioner receives a pension of UAH 2000, after the innovation payoff “grow up” to 2,340 USD.

And how to understand, raise pensions in October or not?

Primarily higher pension after the October recalculation unable to Ukrainians, who have retired at least ten years ago, earned more than 30 years of experience had a salary, which is much higher than the national average.

Also in October will spend indexation of pensions – payments will increase to 61 UAH. The increase under the indexation will not affect those who at the moment the estimated amount of pension is significantly above the subsistence level for the disabled. In addition, payments in October, as part of indexing will not promote those who they are not tied to the subsistence level, for example, civil servants.

Say now get a pension will be more difficult. Is this true?

Yes, under the pension reform plan to tighten requirements for obtaining old-age pensions. In the next year to receive the pension at age 60 you need to have at least 25 years of service, with each year, this requirement will increase to 12 months. Already in 2028-m, to receive pension at 60, you will need to have at least 35 years of experience. The government has estimated that these ten years is only 55%.

In this case we are talking about the insurance period, i.e. the period when wages were rallied the contributions to the Pension Fund.

What to do if you experience not enough?

More stringent requirements for receipt of a pension, the government proposes to increase the “effective retirement age”. If you do not have enough experience, have to retire at 63 or even 65 years.

Requirements for retirement in 63 years would also increase on 12 months annually. Next year for retirement at 63 would need at least 15 full years of service. But after 10 years in this age of “deserved rest” will leave Ukrainians with experience from 25 to 35 years. At the same time, the minimum length of service for a pension at 65, according to a document reviewed not. The Ukrainians have the right to retire at this age, subject to the availability of at least 15 years of experience.

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.

I heard that I should introduce a funded pension, is this true?

The next step of reform, says the government, the launch of the funded pillar of the pension reform. It is assumed that innovations of this year will reduce the Pension Fund deficit and then will have the opportunity to run a funded pension.

How this will work, the Cabinet of Ministers has not yet decided. Previously it was assumed that the pension will be accumulated in the state Fund due to the additional “tax” from 2 to 7% of salary. What are the problems with the launch of the funded pillar of the pension system, can be read here.