Translated by Ollie Richardson
The main international creditors of Ukraine – the IMF and the World bank – approved the pension reform planned by the government of the country. And although formally in it there is no talk about increasing the retirement age, in reality, thanks to the reform subterfuge, very few Ukrainians will live up to pension age. And furthermore, it will be even worse.
Experts of the International Monetary Fund and World Bank supported the draft of the pension reform prepared in Ukraine, reported the press service of the Ministry of Social Policy of the country.
Pension reform is one of key requirements of the IMF for the continuation of the program of crediting Ukraine. The Ukrainian authorities, as they could, delayed the moment of acceptance of pension reform, which threatens serious social disorder. To reduce social discontent, in the draft increasing the retirement age was veiled. Formally it isn’t mentioned, the main emphasis is on an increase of the labor (insurance) experience.
Now any Ukrainian citizen with 15 years of work experience can count on receiving a pension at 60 years (man) and 55 years of age (woman). After 2018 the insurance period rises to 25 years. And from the same year the requirement of an insurance period will rise by one year until 2028. As a result, in ten years, in order to receive payments at 60 years of age, the person will have to have a working period of 35 years. With a period from 15 to 25 years it will be possible to count on a pension at 63 years of age. While the chance to “buy” up to five years of working period is given, having made the corresponding contribution.
Ukrainian citizens who didn’t manage to accumulate 15 years of insurance period, after January 1st, 2019, will be able to count only on payments of social benefits, and not before they turn 65 years old. For women, a transition period has been introduced to increase the retirement age from 55 to 60 years of age.
I.e. only those who worked all their life and regularly paid insurance premiums to the pension fund of Ukraine will receive a pension at 60 years of age (we are talking about men). But if the man didn’t find work in his Motherland or preferred to earn in Russia or Europe and therefore didn’t pay insurance premiums, he in his native land can’t count on a pension. Or rather, he can count on only a social pension from the State, and today this is less than 400 UAH ($15) and only at 65 years of age.
At first sight it seems that it is quite fair in the solidarity scheme of the pension system. If a person didn’t contribute insurance premiums, why should they receive a pension in old age? However, the Ukrainian authorities created such a situation where gastarbeiters, working abroad and sending dollars to the country, do for the stability of the national economy much more than the authorities themselves and the officially working for 6,400 UAH ($243, an average salary in the country) citizens in Ukraine. Gastarbeiters act as the main foreign investors in the Ukrainian economy.
Moreover, even inside the country many work informally. They often agree to work without registration to have the opportunity to leave for themselves more than 20% of potentially paid taxes, automatically losing seniority, notes the economist from the “Ukrainian choice” movement Aleksandr Koltunovich to the “VZ” newspaper. Many companies survive only because they work in the gray.
Finally, a of the current pensioners are fake. “In the country there are a great number of those who don’t need and have no legitimate right for pension payments. For example, even the simplest officials immediately register themselves as the third group of disability and retire. There are millions of such cases. On the contrary, the medical records of many who are genuinely ill vanish,” said Koltunovich. If the accounting of citizens in the country worked better, then there would be fewer pensioners in Ukraine, considering the real age categories of the population, he added.
Currently more than a third of men living in Ukraine don’t live up to 60 years of age. The pension fund of the country, apparently, has to only be pleased about such a short life level. But one of the problems of Ukraine is that in the country the officially working able-bodied population is too small. According to data for 2016, 16.4 million people officially working in Ukraine accounts for 12.1 million pensioners. In 2015, the pension fund deficit was 80 billion UAH at a cost of 245 billion UAH, and the income of the consolidated budget of Ukraine was 652 billion UAH. In 2016 – the pension fund deficit was already 145 billion UAH, and the income of the budget – 700 billion UAH. I.e. 21% of budget revenues are used to solve pension problems.
There are two options – either increase the budget revenues, or pay fewer pensioners. The IMF considers the second way as more fair, that’s why this option is followed by the Kiev authorities.
As a result, the future generation of Ukrainian citizens will have to not only pay off accumulated debts now by the State, but also to provide for itself in old age. Because pension reform, on the one hand, will reduce the pension deficit. But it will mean one thing for the citizens of the country – only a few will receive real pensions.
“First of all, it isn’t those Ukrainians who soon will retire and who officially worked all their life, but the present younger generation who can’t now officially find a job even on minimum paid civil service who will suffer. Those who work abroad today, and this is up to 10 million people, won’t be able to apply for a pension also. Taking into account the record youth unemployment, and also a huge number of labor migrants (about 10 million), very few people will be able to acquire the 35-year seniority in Ukraine,” considers Koltunovich.
Europe has similar demographic problems, and there the retirement age is also raised. However, Europeans die on average much more later than residents of Ukraine, and the problem of a shortage of young working hands is solved at the expense of migrants. Ukraine has the mirror situation – the youth leaves the country. It means that only a sharp increase of welfare to its inhabitants will help the country exit the pension crisis. It remains to be understood how the Kiev authorities can achieve this.
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