In Ukraine, want to change the procedure of indexation of pensions

The Cabinet proposes to increase pensions in new ways.

Pensions in Ukraine at the moment, should increase by at least the rate of inflation. This increase is not a percentage of private pensions, and the percentage of the subsistence minimum for the disabled.

The government reform proposes to recalculate the amount of the pension according to the formula each year, increasing the average wage.

According to the document, the pension increase will not be on the percentage of the subsistence minimum and on a percentage wage growth over the past three years + half of the inflation index over the last year. While the increase will be one of the components in the formula of calculation of pensions, as a result, retirees will receive increases, the size of which will depend on seniority and the salary factor.

Suppose the reform acts now. With 30 years of experience and the salary of more than 10 thousand hryvnia (one and a half times higher than the national average), Ukrainian could claim a pension in 1964, the hryvnia. The payout would be according to the formula:

The average salary for the prior three year × ratio of own wage to the average × experience × 1% = 3764×1,5×30×1% = 1693,8 the hryvnia.

This year, the pension would have to increase by 10.9% (the average salary, from which pay dues for the last three years has grown on average by 9.5% per year, and inflation last year reached 12.4%). Instead of having to add a percentage of the subsistence minimum, under the proposed system, the pension is recalculated, taking into account that the average in three years wages grew by 10.9%.

Then we would have assigned a pension “modernize” would be to 1878 hryvnia
4174 ×1,5×30×1% = 1878,3

In fact, the “increase” in this case is 185 hryvnia. Under the old rules to this pension added to 10.2% of the subsistence minimum, that is 126 USD. The higher salary was a pensioner and the more experience, the faster will grow the pension.

In 2014, in Ukraine, salaries grew by only 5.6% and in the last year of 22.3%. The Cabinet proposes to increase pensions in terms of average growth over three years. If the Ukrainian economy will develop, together with the wage growth at high rates will increase and pensions. According to Prime Minister Vladimir Groisman, such a mechanism would help to avoid “aging” of the pensions.

© 2017, paradox. All rights reserved.