Prime Minister of Ukraine Volodymyr Groysman at a Government’s meeting
on May 17, presented the main provisions of the draft law of Ukraine "On
amendments to some Laws of Ukraine on increase of pensions" offered by the
Government in the framework of the pension system, which should be triggered
starting 1 October 2017.
While presenting the draft law, Volodymyr Groysman stressed that the
core objective for the Cabinet of Ministers has been and remains the
development of the national economy and the opportunity to give citizens what
is "rightfully theirs". To this end, at the beginning of the year the
Government had increased the minimum wage twofold and considers now the issue
that will allow the Government to increase retirement payments.
"During the year we adopted a decision to increase the minimum wage
twofold and we are committed to increase pensions for retirees. The Government
will prolong its endeavors towards accumulation of funds in order to improve
social standards for citizens. Our seniors should receive decent pensions -
compensation for their tangible input to the work. The restoration of social
fairness as well as the abolishment of leveling which completely discourages
everyone", stressed the Head of Government.
He noted that now the Government paves the way to ensure an annual
automatic indexation of pensions that will increase welfare of the Ukrainian
citizens as well as to enhance the sense of security.
“Our essential task is to pay tribute to those people who are currently
working and producing national product, who develop the national economy. At
the same time we must not forget those who for decades have been working for
the benefit of the country and are retired now, but most regrettably these
people are facing difficult life situations now”, urged the Prime Minister.
He stressed that amendments proposed by the Government is a system work
that updates the mechanisms which existed previously and provides new financial
and social bases of relations between Government and citizens. Volodymyr
Groysman thanked to President of Ukraine Petro Poroshenko and former Prime
Minister of Ukraine Arseniy Yatsenyuk for their significant contribution to
stabilizing of the economic situation in the country, which allowed the country
to implement the necessary reforms.
The Cabinet of Ministers of Ukraine at its meeting approved the draft
law on the proposed amendments and submitted it to the National Reform Council
for further consideration. The Prime Minister will appeal to the President of
Ukraine with a request to hold such a meeting within the shortest possible
period of time. Further, the draft law will be sent to Parliament for
discussion and adoption as required by the Medium-Term Action Plan of the
Government and by commitments of Ukraine enshrined in the programme
of cooperation with international partners.
“After the adoption of this draft law, I take full responsibility for
the introduction of the aforesaid reform and for a positive result for the
Ukrainian pensioners. I am committed to bear personal and political
responsibility”, summed up the Prime Minister.
Presenting the bill, the Prime Minister stressed that the pension
system, in what the majority of
pensioners are living below the poverty line, requires immediate change.
Thus, 8 million out of 12 million seniors receive only the minimum pension UAH
1312 (since May this year), which makes up only about 50% of the consumer
basket in the actual subsistence minimum for persons who became disabled. The
average pension in Ukraine is UAH 1828 (as of 1 April 2017).
Apart from that, the system for
calculating pensions is unfair. The calculation formula, which involves the
use of coefficients, payment of increment, sum of indexation, is unclear, and
this doesn’t allow people to calculate their future pension, thereby negatively
affecting the incentives to pay contributions. Moreover, the differentiation of
pensions depending on the income has been completely lost. Currently, 8 million
persons have been assigned supplement to the minimum pension.
The current system
also generates discrimination based on
the year of retirement. The last updating of pensions was carried out in
May 2012, while the minimum wage was increased 9 times. As a result, there
exists segregation of pensioners by year of retirement – the sum of pension
with having the same pension insurance record and wages can vary by over 3
times, while pensioners are sliding into poverty with time.
Unfairness in the payment of contributions to
shape a pool of funds set aside for a worker's future benefit gave rise to a low level of pension insurance
coverage for the employed population, 25% of the employees do not pay Unified
Social Tax (16.3 million people makes up the employed population). 10.5 million
out of 26 million people aged 18 to 60 years pay contributions on a regular
basis, for 1.5 million people pays the state.
Government initiatives to ensure the
increase of pensions and sustainability
of pension system
As the first step the pension reform offered by the Government provides
for the modernization of pensions.
With this purpose the Government introduces single rules of calculating the size of pension payments.
It is introduced a new formula for calculating pensions with a uniform
approach to both categories ‘old’ and ‘new’ pensioners using the average wage
level UAH 3764.40 (previously, depending on the year of assigning pension it
ranged from UAH 1197.91 up to UAH 3764,40), i.e. the showing made a basis for calculating pensions will be increased
almost threefold. As a result of increase of pensions in the case of
modernizing wage to UAH 3 764.40 more
than 5 million Ukrainian pensioners from 1 October 2017, after the adoption
of this bill by Parliament, will receive
an increase of pensions over UAH 1 thousand monthly for categories
belonging to the range of up to UAH 200, of which about 4 million Ukrainian
pensioners will receive UAH 300 and over UAH 1 thousand as a monthly increase,
explained the Prime Minister.
The aim of the pension reform is to
ensure a deficit-free budget of the Pension Fund in the medium term, what
will occur through the establishment of requirements to the duration of
insurance qualifying period and the minimum size of the insurance installment.
After raising by the Government of minimum wage
in the country contributions to the Pension Fund have amounted to UAH 295 680 a
year and exceeded expenses amounting UAH 269 352.
The Prime Minister stressed that while drafting the pension reform, the Government had managed to avoid raising the retirement age. "The retirement age
remains 60 for people who have an insurance period of 25 years", noted the
Head of Government.
Herewith a flexible corridor of
the retirement age and the possibility of compensation for the absent
pensionable service is introduced
- citizens who lacks sufficient length of service to satisfy the requirement
regarding minimum pensionable service, will have an opportunity to pay
contributions for the missing years (maximum 5 years). "The pension system
doesn’t mean social assistance, but contributions of a person who works to have
benefits in old age. In fact, this is the way all the pension schemes of the
world are operating", he said.
Another novelty is the Government has envisaged for the abolition of special conditions of retirement, excluding military
personnel. In this context, it is stipulated for replacement of a mechanism
of compensation of old age pensions on preferential terms for the payment by
employer of the increased single contribution rate at 15% and 7% for employees
engaged in work provided by the lists ¹1 and ¹2, that are to be expanded, and
the introduction from January 1, 2019 through Accumulative Pension Fund of
accumulative occupational pension programs for certain categories of persons
From 1 January 2018 the right to assign pensions for the seniority will
be revoked for employees in education, health, social protection and other
sectors "who had more benefits when retire through low wages". In
this regard, the Prime Minister noted that a year before the Government had
upped salaries for teachers and doctors and will prolong this increase.
"Ukrainian teacher, Ukrainian doctor must get decent wages", he
The Government aims
to achieve stability of the pension
system that will provide fair pension payments in the future as well. In
this context, the Cabinet of Ministers proposes to cancel the limitation of pension rates for working pensioners
(85% of pension payment, but not less than 150% of the subsistence minimum for
persons who became disabled).
Government also stipulates in the bill for an
automatic norm of annual indexation (recalculation) of pensions to protect
against inflation: taking into account the financial possibilities of the
consolidated scheme, but not less than by 50% of the growth of average monthly
wages for three years and by 50% of the consumer price index. "It's a
guarantee that no one else in the country will leave the needs of the Ukrainian
pensioners until later. We have shaped a system norm that would ensure
modernization and increase of pensions annually. This is an extremely important
step, none has done that before", said Volodymyr Groysman.
In addition, the Government offers to envisage for 2017 a second increase of social standards by 5%
from 1 October instead of 1 December, as was planned by the State budget.
Thus, this reform launched on October 1 will allow the country to increase pensions for 9 million
Ukrainian pensioners out of the total 12 million seniors.
Speaking about the financial
basis of the pension reform, Volodymyr Groysman noted that additional need
for funding to upgrade pensions from October 1, 2017 makes up UAH 11.2 billion
and another sum worth UAH 800 million to trigger the increase of social
standards starting October 1 instead of December 1. The overall sum makes up
UAH 12 billion.
For 4 months of 2017 the Government has provided as revenues to the
Pension Fund additional UAH 7.9 billion after the increase of the minimum wage.
It is expected that by the end of the year surplus of revenues of the Pension
Fund will exceed UAH 4 billion that will be used to allot the necessary funding
UAH 12 billion. Thus, "we have already have money to launch it on October
1", said Volodymyr Groysman.
In 2018 the additional need in funds for payment of the
"modernized" pensions based on improving the living wage will make up
UAH 30 billion. However, additional revenues from the initiatives envisaged in
the bill, and the growth of revenues of the Pension Fund of Ukraine, which is
being observed nowadays, will equal the needed UAH 30 billion and be sufficient
for upgrading and payment of pensions in 2018, said the Head of Government.
Everything exceeding this figure will be used to repay the deficit of the
Pension Fund and to ensure sustainability of the pension system.