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Pension reform: what will change for Ukrainians

Пенсионная реформа: что изменится для украинцевFrom October 2017 the government is promising to index pensions in Ukraine by 5%.

Pension reform, about which so much talk of domestic policy, low start.

Recently the Verkhovna Rada approved in the first reading the relevant draft law No. 6614 filed by the Cabinet in June.

Introducing the draft, the Prime Minister Vladimir Groysman declared that its adoption will allow from 1 October 2017 to change the pension system and to eliminate the Pension Fund deficit. In particular, since that date, the minimum retirement pension will amount to UAH 1373 (now — 1247 UAH).

The main feature of the reform, the government considers the modernization of pensions, which will affect 9 million retirees (from 11.9 million persons). In addition, there are four innovations that are designed to balance the solidarity system of pension provision:

The abolition of the special conditions of retirement
The lifting of restrictions on pensions for working pensioners
The increase in the period of retirement those who lack seniority.
Automatic annual indexation of pensions to protect against inflation: taking into account the financial possibilities of the joint system, but not less than 50% growth of average monthly wages for three years and 50% of the consumer price index.

The worst conditions for retirement

“Technically, to convert pension easy. Even if the law is adopted in the first half of September, then to October is quite possible to raise pensions. Money the allocation, according to the government is (11.2 billion UAH). This is the right step in the elimination of disparities in pensions. Than continue to delay this issue, the worse, and more resources should be spent”, — said the expert, ex-Deputy Chairman of the PF (2008-2010) Viktor Kolbun.

In particular, the government promises from October to index pensions by 5%. Will be recalculated using a single average wage, which is used for a pension in 2017 in the amount of 3764,4 UAH (previously — depending on the year a pension 1197,91 3764,40 UAH to UAH), i.e. the metric on which pensions are calculated, will increase almost three times.

We will adopt uniform rules for determining the pension size. This is done in order to equalize the amount of pension of those who retired many years ago and those who stopped working only recently. Otherwise, with the same seniority and wages pension of these citizens is significantly different.

“The use of average salary for 2017 can significantly increase payments. Certainly not 9 million people, but the rest of the payments can be raised by 1-1,5 thousand UAH. All depends on the individual characteristics (experience and earnings),” said Kolbun.

According to the Minister of social policy of Ukraine Andriy Reva, the first step is increasing payments to those who pensions were paid in 2008-2014. It’s approximately 5.6 million pensioners. In 2019 will raise payments to those who retired in 2015-2016 (in terms of wages in 2018) and so on. This process will be finished needs in 2021.

Modernization will not only affect the military, for which it is proposed to 1 October 2017 to prepare a separate draft law on pension modernization. And over the next six months should receive a separate law on the introduction of professional pension system for the military.

After 2021 will begin the process of indexation of pensions taking into account the level of inflation and the average salary to in the future having the income gap between “old” and “new” pensioners.

Also in 2018 will change the formula for calculating pensions. It appears only three measures: experience, the average salary in the country and their own employee’s salary. If the draft pension reform will, from next year, the Ukrainians will get pensions with the most disadvantageous conditions.

Before 2008 account of the average salary over the past year, and every year gave 1% to the pension. After you have decided instead of 1% to estimate year of service will be 1.35% when calculating the pension will be taken into account, the average salary does not last, and for the past three years. Given that the average salary is growing every year, the average salary in three years may be several times less than the average salary in the last year.

According to a senior researcher of the Institute of demography and social studies Lydia Tkachenko, it will be the worst conditions for retirement. In 2008, when one year was estimated at 1%, and the average salary taken over last year, and not for the prior three years.

As explained by Viktor Kolbun, reducing the coefficient of experience will help to balance the budget.

“It is important that this occurs simultaneously with the indexing. Since the reduction factor will be offset by an increase in the average wage. This gives now much more in the increase of pensions, increased the rate,” said Kolbun.

According to him, in the long run it will balance the system PF that will be visible after a few years.

Experience for sale

The government is proud to be conducting reform without raising the age of retirement. However, for many future retirees, the long-awaited leave time on a holiday may not happen in 60 years as it is now, and at 63 or 65 years.

The fact that retirement at 60 years with the January 2018 you must have at least 25 years of service (currently a minimum experience of 15 years, but most retire with 25 years of experience and more). The minimum insurance period will increase annually by 1 year until you are 35 years of age in 2028.

In 2018 with the experience of 15-25 years of retirement will be to go in 63 years, less than 15 years — 65 years. Those who have no insurance experience at all, can apply for social assistance upon reaching the age of 65. The amount of assistance will be determined on the basis of the family income of the pensioner.

This introduces a flexible corridor in the retirement age and the possibility of compensation of the absent of insurance — citizens who do not have enough seniority to meet the requirement of minimum experience will be able to pay contributions for the missing years (maximum 5 years).

According to the chief economist of Dragon Capital Elena Belan, binding to insurance experience will motivate people to work longer and to work legally, bringing from the shadow of their earnings. As a result, increase the income of the Pension Fund, and the costs will grow slower, which should lead to a gradual reduction of the deficit of the PF.

Benefits for military and midgets

Another step aimed, supposedly, at achieving social justice and the elimination of the deficit PF — abolition of the special conditions for retirement (excluding military personnel). That is, from 1 January 2018 to revoke pensions for years of service for doctors, teachers, social workers and others, whom it more profitable to retire due to low wages.

Preferential retirement will remain only for:

workers in hazardous and difficult working conditions;
military — combatants (55);
midgets and people with disproportionate dwarfism.

It is proposed to replace the mechanism of compensation of government payments on subsidized pensions for the payment by the employer increased the rate of single contribution in the amount of 15% and 7% for workers employed in hazardous work (the so-called lists №1 and №2). As well as to introduce from 1 January 2019 special Fund occupational pension programs for certain categories of persons under the age of 35 years.

In addition, the planned absorption existing in the structure of pension payments temporary promotions, various allowances, fixed indexation and other.

In the course of modernizing pension, which was granted under special laws (special pensions) are recalculated according to the rules of calculation of ordinary pensions. If the size of the pension appointed according to the special law, after allocation will be less, and it will continue to be paid to the previously designated size. But if will be more — will be paid a large sum.

Finally, working retirees will cancel 15% tax on pensions. According to the Deputy Chairman Vladislav PF Mashkina, this will affect approximately 500 thousand working pensioners who now receive 85 % of the assigned amount of the pension, but not less than half of the subsistence minimum.

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