Pension reform: Ministry of Social Policy explains the need for changes

Ukraine is currently drafting a pension reform project aimed at restoring fairness in pension levels for a significant number of citizens.

This was stated by Dariia Marchak, First Deputy Minister of Social Policy of Ukraine, during a briefing at Media Center Ukraine.

“We believe that the pension system is in urgent need of reform. We have developed a project to reform the solidarity pension system. We have also developed a project that allows for the future introduction of an accumulation pension system. We are working on the basis of two important factors. The first is that we need to make the system simple and understandable. The current system is fantastically complex, with many inconsistencies. It is not fair, and there are many situations where pensions are so low that the state has to constantly top them up with supplements and allowances,” she explained.

According to Dariia Marchak, the reform project is based on a model used in almost half of European countries, including Germany, Austria, Lithuania, Latvia, Cyprus and others. The key feature of this model is its simplicity.

“It works in such a way that in 10 minutes a person can understand how it works and what factors affect the amount of their pension. The model works as follows: there is a fixed amount of contributions that are paid into the pension system on a monthly basis. These contributions are converted into a unified synthetic unit according to the same rules, and a person knows the number of points they earn each month and the value of each point. This is enough to calculate their future pension,” the deputy minister explained.

According to her, if the reform is implemented, a significant number of pensioners, whose pensions are underestimated due to inefficient formulas, will be able to receive a fair pension.

“We will no longer need most of the supplements and adjustments. Only the standard pension amount will be used. This will help to restore fairness in the level of pensions for a significant number of our citizens,” said Dariia Marchak.

She also mentioned that the reform is currently being coordinated with key stakeholders. Once the financial aspect of the reform is agreed, it will be submitted to the Cabinet of Ministers and the Verkhovna Rada for consideration.

“Of course, we would like to see this reform go into effect in 2024, but that is unrealistic. We understand that we have a long process ahead of us. We have to submit the reform project to the Cabinet of Ministers, then to the Verkhovna Rada, where there will be two readings. Since the reform is large and complex, the timeframe for both readings is uncertain. However, we are deeply convinced that the reform is urgently needed for our country, no matter when it is voted on,” she added.

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