To oblige all Ukrainians under the age of 35 years to save for retirement: the bill on pension reform

In the autumn, Parliament will consider several projects of pension reform. In addition to the government’s version, which is already supported in the first reading, the Parliament registered the draft law “On introduction of the funded pillar of the pension system”. The Cabinet of Ministers proposes to “modernize” old pension, as a result, current retirees will receive an increase from 50 to 1000 hryvnia, and to cut by 25% all pension, which will be appointed after the reform. These and other innovations, including the abolition of pensions for length of service, special pensions for scientists, etc., would eliminate the Pension Fund deficit for seven to ten years, believe officials. At the same time, the MPs propose to collect from the salaries of Ukrainians a few percent and to accumulate funds in personal accounts. That is to run the funded level of the pension system. The website “Today” figured out how on the lives of Ukrainians can influence the registered bills.


The pension system of Ukraine, according to the law, consists of three levels: solidarity, mandatory funded and voluntary funded. Solidary system (that works now) suggests that everyone who works must pay part of their salary to the Pension Fund. There the funds collected are redistributed among all pensioners. Their contributions actually “buy” the right to receive a pension when he will be released on a holiday.

The launch of the mandatory funded system in Ukraine announced several times. However, until now, to implement the proposals and could not. Deputy Prime Minister for social policy Pavlo Rozenko announced that funded pensions will have this year, however, the Minister of social policy said: a cumulative level will start only in 2021.

The argument of the Ministry against the run of funded pensions is now a deficit of the Pension Fund. “We objectively assess the economic situation, and I hope that the introduction of the second pillar of the pension system could begin in 2021. In 2021, equal retirement age for men and women. According to our forecasts, by that time, the average salary should rise to 11 000 UAH. And under favorable conditions, possibly more. That is, hopefully, we have all the prerequisites for the introduction of the funded pillar of pension provision”, – quotes the Minister of social policy, the press service of the Ministry.

Photo: archive

Another problem is that in Ukraine there is no stock market. To the accumulated money is not “eaten” by inflation, they need to invest. A few years ago, the annual rate of inflation reached 40%. Among reliable investment instruments (banks, government securities) no one makes a profit even more than 20%. To save money in the economic crisis – difficult.

The third level – private pension funds, is already working in Ukraine. However, it involved less than a million Ukrainians. Potentially on pensions would collect 26 million people, that’s the number in Ukraine of able-bodied citizens.

And experts and the government agree that the situation needs to change. At the end of this year the Pension Fund deficit should reach 141 billion hryvnia. Thus the lion’s share of pensioners receives about 1312 UAH, and average pension – about 1800 USD.

What is offered to parliamentarians

The initiators of the parliamentary bill – 59 people’s deputies from different factions – propose not to wait until it is liquidated, the deficit of the Pension Fund. The MPs plan to introduce a funded tier of the pension system at the beginning of next year. If the bill is adopted, all Ukrainians under the age of 35 years will be obliged to save for retirement. Those who are older will be able to participate in the cumulative level at will.
Money will accumulate in private pension funds. Every Ukrainian will be able to choose the Fund yourself. “Insured person for participation in the accumulative pension insurance system, choose non-state pension funds in which they wish to form their mandatory retirement savings. At the request of a person, it may at any time to move to another non-state pension Fund”, – the document says.

While participation in the solidarity system was not canceled. That is, wages 22% will go to the joint level, and 2% into a private pension Fund. Each year, the amount you need to pay in the private Foundation will increase by one percentage point until it reaches 7% of salary.

Thus, Ukrainians will be able to receive two pensions from the solidarity and savings levels. However, this will not affect those who are over 35 years old and did not want to voluntarily participate in the storage system. It should be noted that the contradictions with the government’s “pension reform” in this bill no

“There is a possibility of inheritance of accumulated pension savings, and their full or partial use until retirement age in case of: treatment of severe diseases, the onset of critical situations, the need to pay for education of children or the acquisition of real estate and the like”, – stated in the bill.

“There is a possibility of inheritance of accumulated pension savings, and their full or partial use until retirement age in case of: treatment of severe diseases, the onset of critical situations, the need to pay for education of children or the acquisition of real estate and the like”, – stated in the bill.

By the way, a few years ago Ukraine was planning to launch a state funded level, now they are going to give savings to private funds. “If the second level of the public do, it makes no sense. No wonder the IMF is strongly against such a second level. If it is public, then all the problems of the solidarity system will go to the second level. The state is the same, the quality of controlling the same, the money’s the same. If you put money on Deposit in state banks or in government securities, as suggested…all of this can lead to an increase in domestic public debt and real investment will be. As experience shows, the money from the sale of government securities are usually used for current state needs”, – said senior researcher of the Institute of demography Lydia Tkachenko.

Photo: archive

Only the joint level to provide high pensions to Ukrainians can’t. According to the Convention of the International labour organization, the level of pension should be not less than 40% of last earnings. Under current law, a Ukrainian, who has worked for 35 years and had a salary 1.5 times above the average (more than 10 thousand hryvnia), can claim a pension at 2603 hryvnia. This is 26% of last earnings. After the reform of the pensioner with the same salary would receive a pension in 1976 hryvnia. That is less than 20% of last earnings.

That government offers

To cut by 25% in all of their future pension. One component in the formula for calculating pensions, the coefficient estimates of the experience – the Cabinet of Ministers proposes to reduce by 25% – from 1.35 to 1% per year worked. This will lead to that prescribed after the reform of the pension will be lower. The Ukrainians, who had a relative equal to the salary and seniority, will receive different pensions. In the government explain: used to pay social contribution in the amount of 37% of salary, then you spent a year rate of 1.35% of the estimated earnings, and now, when the contribution was reduced to 22%, you need to reduce the assessment ratio experience.

To increase the already granted pension. The so-called “modernity” will allow to raise payments from 12 to 5.6 million pensioners. The fact that the estimated amount of wages in the formula of calculation of pensions each year obsolete. The essence of “modernizing” is to recalculate pensions on the new average for the three years of salary. Read more about how and who will raise pensions, can be read here.

By the way, also, the bill contains a mechanism for the annual increase of pensions by 50% from the level of growth of the average annual salary for the last three years and at least 50% of the level of inflation.

To tighten the requirements for experience. To receive a pension at age 60 in 2018 will 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.

To cancel the “special” pensions and retirement for years of service. If MPs support the government plan, doctors and teachers will not be able to retire early. But prosecutors, scientists, etc. will receive the same pension as other Ukrainians.