This reform is aimed to restore justice in calculating pension benefits both today and in the future. A decent pension should be guaranteed to an individual who has worked honestly all through their life.
The pension reform also includes the implementation of the European standards in the work of the Pension Fund of Ukraine. State-of-the art information and management technology and uniform quality standards will help provide convenient and efficient services to Ukrainians.
Expected targets:
Pension spending equivalent to 12% of the gross domestic product and minimum retirement benefits equivalent to 40% of earnings.
Retirement benefits recalculated annually for 11 million pensioners.
132 thousand employees participating in accumulative mandatory occupational retirement plans.
Current year results:
The following levels of pensions and benefits have been approved in 2020 and taken effect since 01 April 2020 pursuant to Resolution No. 251 of the Cabinet of Ministers of Ukraine dated 01 April 2020 “On raising the level of retirement benefits and providing social support to certain groups in 2020”:
- monthly compensation of UAH 500 to persons aged 80 or older whose retirement benefits, including all allowances and increments, are under the average salary used in calculating the 2019 pensions; and the minimum pension equivalent to UAH 2,600 to those persons, provided that they meet the length of pensionable service criteria (20 years for women and 25 years for men);
- non-recurring financial assistance equivalent to UAH 1,000 to some groups, including pensioners, persons with childhood disabilities, children with disabilities, persons getting government allowance who are not otherwise entitled to pension, and persons with disabilities.
Starting from 01 May 2020:
- pensions have been recalculated using 1.11 factor of increase of average taxed wages (income) taken into account in calculating pensions in Ukraine.
- As of 01 July 2020, average retirement benefit increased to UAH 3,394 vs. UAH 3,006 on 01 July 2019.
- The number of persons paid under UAH 2,000 decreased by 60.4%
The Government also works on the improvement of the pension system in Ukraine. In particular, the Government is preparing to introduce accumulative pension insurance and developing a voluntary private pension system.
The fertility and able-bodied population rates are currently falling while life expectancy is increasing. 2019 was the worst year in demographics terms.
The fertility rate in Ukraine in 2019 reached its bottom in the country’s history; there were only 7.4 new-borns per 1,000 residents. There are fewer Ukrainians under the age of twelve months than residents of any other age up to and including 72 years, a situation we have never seen before. Ukraine is among the five countries of the world with the lowest fertility rates. We already have 13 million persons whose premiums to the Pension Fund of Ukraine are paid by others, and 11.2 million pensioners. this situation will only get worse in 30 years’ time due to demographics. Pension spending will increase. To mitigate these risks, we need to balance the two systems — solidarity financing and accumulative pension insurance. The accumulative system is independent of demographics but is open to financial risks while solidarity financing has quite the opposite characteristics.
The vast majority of the world’s countries have the pension system which consists of at least two components: the state (solidarity) one and the accumulative one. The evidence from practice shows that the individual component makes the main part of retirement benefits while the state component is often just the guaranteed minimum pension. All countries where the solidarity pension funding prevails have one common issue: there become more pensioners over time than working persons, hence, insufficient resources to pay pensions or increased budget expenditures.
Voluntary individual contributions will eventually be used in calculating retirement benefits separately.
Mandatory annual pension adjustments, including for public officials, personnel of local governments and journalists, and the introduction of a fair retirement benefit calculation mechanism.
Annual (indirect) pension adjustments starting from 2021 are required by Law of Ukraine “On Amendments to Certain Laws of Ukraine on Increasing Pensions”. These adjustments will be performed by raising pensions by 50% of the consumer price increase in the previous year and by 50% of increase in the average wages (income) taxed over three calendar years preceding one year prior to the year of increase.
Protecting the right to retirement benefits of internally displaced persons, including those living in the temporarily occupied territories.
The internally displaced persons, including those living in the temporarily occupied territories, get their pensions in the areas controlled by Ukraine.
Introducing the second tier of the pension system. i.e. accumulative pension insurance.
The next step of the pension system reform includes smooth transformations in accumulative pension insurance. It will help diversify the sources of and increase retirement benefits. The Government’s priority will be to present a bill on accumulative professional pension insurance.
Enhancing the functionality of the Pension Fund e-service portal and taking measures for the pension insurance processes automation.
Strengthening liability for evasion and non-payment of the single social security tax or other mandatory payments to the Pension Fund of Ukraine.
A review of the statutory single social security tax incentives.
Effective state surveillance of the Social Insurance Fund and Pension Fund cash management.
Unification and harmonisation of the non-governmental pension funds laws with the EU legislation to improve protection of property rights and interests of participants of accumulative pension insurance plans.
Expected targets:
Pension spending equivalent to twelve percent of the gross domestic product and minimum retirement benefits equivalent to forty percent of earnings.
Retirement benefits recalculated annually for 11 million pensioners.
132 thousand employees participating in accumulative mandatory occupational retirement plans.
Tasks for the current year
To develop and submit to the Cabinet of Ministers of a bill on accumulative professional pension insurance.
To analyse the implementation of the state policy in single social security tax administration. To prepare proposals for enhancing the quality of single social security tax administration with regard to addressing the negative effects of COVID-19 pandemic on economies.
To improve the pension adjustment mechanism.
The Ministry of Social Policy together with other government agencies supported by the World Bank in Ukraine.
The Government’s 2020 Priority Action Plan