Volume 12 - Issue 67
/ July 2023
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http:// www.amazoniainvestiga.info ISSN 2322- 6307
DOI: https://doi.org/10.34069/AI/2023.67.07.28
How to Cite:
Sokurenko, O., Bulkat, M., Rakul, O., Strunevych, O., & Petrov, S. (2023). Pension provision in Ukraine: current problems and the
experience of some EU States. Amazonia Investiga, 12(67), 317-326. https://doi.org/10.34069/AI/2023.67.07.28
Pension provision in Ukraine: current problems and the experience of
some EU States
Пенсійне забезпечення в Україні: сучасні проблеми та досвід окремих країн ЄС
Received: July 1, 2023 Accepted: July 30, 2023
Written by:
Sokurenko Olena1
https://orcid.org/0000-0002-8169-3720
Bulkat Maryna2
https://orcid.org/0009-0007-4647-8199
Rakul Oksana3
https://orcid.org/0009-0006-2549-3405
Strunevych Oleksandra4
https://orcid.org/0000-0002-2359-103X
Petrov Serhii5
https://orcid.org/0000-0002-7053-1730
Abstract
The purpose of the article is to identify the problems
faced by the pension system of Ukraine and to study
the European experience to overcome them.
Research results. The levels of pension provision in
Ukraine were determined. The analysis of the
current state of pension provision was carried out,
and the primary problems affecting it were
identified. Draft laws on the introduction of
accumulative pension provision were considered,
which should solve the issue of the deficit of the
Pension Fund budget. Practical meaning. The
positive experience of the implementation of
pension reforms in some European countries, their
stages and features were studied. Value/originality.
The ways to overcome certain problems related to
the introduction of accumulative pension provision
in our country were proposed.
Keywords: pension provision, pension system,
solidarity system, accumulation system, pension
reform.
1
PhD in Law, Associate Professor, Associate Professor of the Department of Law and Law Enforcement of Volodymyr Vynnychenko
Central Ukrainian State Pedagogical University, Ukraine.
2
Doctor of Law, Associate Professor, Head of the Claims and Case Sector of the Analytical and Legal Department of the Supreme
Court, Professor of the Department of Branch Law and General Law Disciplines of the Institute of Law and Public Relations of the
Open International University of Human Development "Ukraine", Ukraine.
3
Doctor of Legal Sciences, Professor of the Department of Civil Law Disciplines of the National Academy of Internal Affairs, Kyiv,
Ukraine.
4
Doctor of Law Sciences, Leading Researcher at the Scientific Institute of Public Law, Ukraine.
5
Doctor of Law, Honored Lawyer of Ukraine, Associate Professor of the Department of Criminology and Forensic Medicine of the
National Academy of Internal Affairs, Ukraine.
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Introduction
Nowadays, the pension fund is a huge burden for
our country. As a result of difficult demographic
situation, which has existed since the
independence of Ukraine and gets worse every
year, and with the beginning of a full-scale war,
it has generally reached catastrophic proportions;
currently there is actually one working person for
each pensioner. If we speak in the language of
numbers, then, for example, if the first receives
UAH 10,000, less than UAH 2,000 is expelled
from his (her) salary to the Pension Fund. If we
consider that a number of people have a
minimum wage (which is what taxes are levied
on), and the rest of the salary is received in
"envelopes", and some categories of pensioners
receive increased payments, then the final
amount turns out to be quite meager, and it is
simply impossible to survive on it in modern
realities. As a result of the current situation, the
Fund has been borrowing money from the State
for years, and today it owes 74 billion hryvnias.
There were times when Ukrainians received a
pension in the amount of 60% of their salary, but
now this indicator has decreased to 30%. If this
continues, then in 2050, it will drop to 20%, or
maybe 10% - Ukrainian and foreign experts have
different forecasts (Hromliuk, 2021).
Currently, Ukraine has a solidarity system of
mandatory state pension insurance, i.e.
obligatory fees are paid to the Pension Fund out
of all wages, which are then individually
distributed among pensioners. However, this
system works when there are many workers and
few pensioners. In the conditions of the aging of
the nation (especially rapid), it ceases to be
effective, and there is a need to search for
alternative options. In Ukraine, the option of
individual pension provision (or mandatory
accumulative pension provision), when each
person saves for his (her) future pension account,
has been discussed for a long time. However, in
case of a sudden transition to a new pension
system, two categories will be affected:
pensioners who are currently receiving payments
at the expense of working people – they will stop
receiving money altogether; people who are
working now will not receive anything for
previous years of work, because they have
already had money deducted from the wages
already paid to modern pensioners.
At the same time, the pension system of
European countries is designed to protect
pensioners from poverty and ensure high living
standard. For example, Europe is also witnessing
an ageing population, however, it was possible to
carry out effective and timely reforms there,
which made it possible to modernize it and bring
it into line with the challenges of modernity.
Therefore, the purpose of our article is to outline
the problems faced by the pension system of
Ukraine and to study the European experience to
overcome them.
Literature Review
A sufficient number of theoretical studies has
been devoted to the concept of "pension
provision", but research is still ongoing, because
in the process of functioning, the model of the
pension provision requires constant
improvement and, as a result, its content and
structure change. Therefore, in order to most
fully reveal its essence. it is necessary to conduct
an analysis of scientific works in this sphere.
Lopakov (2011) emphasizes the duality of the
nature of pension provision, which lies in the fact
that, along with distribution depending on the
volume and quality of work in the past, there is
also allocation according to the needs of citizens.
Investigating the issue of pension provision,
Danyliuk (2012, p. 258) notes that its essence is
manifested in various aspects: legal, social,
economic and financial ones. From a legal point
of view, pension provision is a set of legislative
acts and by-laws regulating pension relations. Its
social essence lies in creating the system of
protection of the disabled part of the population
from social risks (loss of working capacity
because of age, disability, loss of a breadwinner,
etc.). In the economic context, pension provision
is defined as a part of the national income, which
is used to support the disabled population in the
event of the occurrence of the above-mentioned
insurance events. The financial component of
pension provision lies in the formation of
appropriate state and non-state pension funds.
Didkovska (2012) offers to study this issue in a
broad and narrow sense. Pension provision in a
broad sense is considered as a set of monetary
relations aimed at the formation and use of
financial resources of social purpose and part of
the funds of the budgets of different levels of the
budget system for compensation of losses in the
income of citizens who have reached the age of
incapacity for work, received a disability or in
connection with a loss breadwinner .Pension
provision of citizens in the narrow sense is one of
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the forms of pension provision in general, which
is carried out at the expense of budget funds to
all citizens who need assistance, upon receiving
the status of disabled, etc.
Therefore, pension provision is a complex of
legislative, economic, social and moral
guarantees for the elderly, thanks to which equal
conditions are created for all members of society,
ensuring a socially acceptable quality of their
life. On the one hand, pension provision is a
functional system (a system of areas of activity),
on the other one – an institutional system
(a system of institutions providing it)
(Buriachenko, 2017).
As pension insurance and pension reform
became central topics of policy debate, they
became central to the foreign literature on well-
being and its formation.
For pension insurance systems as such, the
reforms of the last years of the 20th century
called into question both the "theory of regimes"
and the Bismarck-Beveridge classification, new
studies arose with the aim of managing new
reforms (Myles & Quadagno, 2000), and creating
new pension regimes (Bonoli, 2003).
The idea of institutionally limited and common
path-oriented reforms was proposed by Pezier
and Schneller (2011) in their study of pension
reforms in England and the USA. The main
problem is that the established welfare support
systems are very difficult to change because of
the expectations of the population that they
generate. In the arena of pension policy, this
refers to the expectations of some individuals, as
well as specific groups and associations that have
significant influence on policy decisions.
European countries are reforming their own
pension insurance systems for the third time
since the post-war period, taking into account the
high dynamics of transformational processes in
the economies of the countries of the world in
general and unfavorable forecast and actual
demographic indicators. Modern international
practice is such that in most countries there are
combined pension systems that join state
distributive, as well as mandatory and voluntary
accumulation elements. The mixed type of
pension system is the most effective in terms of
financial stability and the level of pensions paid
(Stalebrink, 2014).
According to data from the Organization for
Economic Cooperation and Development
(OECD, 2015), from 2013 to the end of 2015, 26
countries made changes to their pension systems,
out of a total of 34 that are part of it. In 9
countries these were reforms affecting the
majority of the population. In others, the changes
affected certain groups of employees (for
example, the private or public sector) or the
pensioners themselves.
Methodology
The validity of theoretical provisions,
recommendations for further scientific
development of the topic, the reliability of
research results is ensured using a set of
philosophical, general and special scientific
methods applied in the research.
Dialectical method was used to analyze the
system of pension provision in Ukraine and to
identify its specifics and features.
Structural and systemic method made it possible
to single out the levels of pension provision in
Ukraine.
Historical method enabled to reveal the
peculiarities of functioning of the institution of
pension provision on the current stage of
Ukraine’s development and before the war.
With the help of formal methods, the main
definitions used in the study (pension provision,
pension system, pension, etc.) were formulated.
Normative and dogmatic method was useful
when studying legal instruments regulating the
issue of pension provision in our country.
Comparative and legal method made it possible
to compare the peculiarities of pension systems
of some European countries, the features of their
introduction and evolution.
Statistical and sociological methods are used for
the purpose of analysis and generalization of
empirical information related to the research
topic.
Modeling method was applied to formulate
proposals on the possibility of using foreign
experience taking into account the current
situation in our country.
Results and Discussion
The pension system in Ukraine consists of three
levels.
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The first level is solidarity system of compulsory
state pension insurance, which is based on the
principles of solidarity and subsidization and the
payment of pensions and the provision of social
services at the expense of the Pension Fund under
the conditions and in the manner prescribed by
law.
The second level is cumulative system of
compulsory state pension insurance, which is
based on the principles of accumulation of funds
of insured persons in the Accumulation Fund or
in the relevant non-state pension funds – actors
of the second level of the pension system and
financing the costs of life pension insurance and
one-time pensions payments on the terms and in
the manner prescribed by law.
The third level is the system of non-state pension
provision, which is based on the principles of
voluntary participation of citizens, employers
and their associations in the formation of pension
savings in order for citizens to receive pension
payments under the conditions and in the order
provided by the legislation on non-state pension
provision (Law of Ukraine No. 1058-IV, 2003).
So far in Ukraine there is a solidarity system,
which actually does not work. A year before the
full-scale invasion, there were 1.5 workers per 1
pensioner. After the full-scale invasion, about 8
million people left our country – mostly women
of working age and children who will remain in
the future to work for the economy of a foreign
country. The future of pensions will depend on
how many people return home, and as
sociological research shows, at least half of the
citizens express a desire to stay abroad. At the
same time, people of disabled age from Ukraine
almost did not leave. The situation is worsened
by the fact that after the end of hostilities, many
people will not be able to work due to injuries
and mutilations, and therefore, they will have
nothing to pay to the Pension Fund.
The cumulative system in Ukraine has been
discussed for a long time – since 2004. In 2019,
Rada a Draft Law "On mandatory cumulative
pension provision" No. 2683 was submitted to
the Verkhovna. The draft law was supposed to
establish mandatory participation in the
cumulative pension provision scheme of all
categories of working persons until they reach
retirement age and involve employers in paying
pension contributions on a parity basis.
Thus, it was planned that employers would pay
2% of the employees’ wages, and system
participants (employed persons) would pay
contributions in the amount of 1 % of wages
(income). At the request of the employee, the size
of his (her) independent contributions can be
increased. The employer is obliged to
proportionally supplement the employee’s
contributions with his (her) own contributions in
the amount of up to 5% of the salary of such an
employee.
The bill offers a composite model of the
cumulative pension system, which provides for
the accumulation of inputs in the Pension
Treasury, the involvement of the Central
Administrator to reduce the cost and consolidate
services for the administration of personalized
accounts of the members of the Pension
Treasury, as well as in non-state pension funds
admitted to the second standard of the said
scheme through authorization.
It was assumed that the participants of the system
will have the right to receive one-time payments,
accelerated payments, program payments,
lifetime pensions at the expense of the funds of
the accumulative pension system.
Ultimately, the main task of the bill is to establish
cumulative pension system, which should be:
• simple and understandable for system
participants, including the same conditions
of access for all categories of persons who
are system participants;
• cheap, including measures to consolidate
certain functions and limit the maximum
amount of expenses reimbursed from the
assets of the participants;
• reliable, which involves the establishment of
prudent investment principles and effective
risk management systems when conducting
transactions with pension assets (Draft Law
of Ukraine No. 2683, 2019).
In 2021, there was an attempt to consider this
draft law, but the document did not gain the
support of deputies – it was sent for the second
first reading, for which 311 people’s deputies
voted. In November 2022, the Verkhovna Rada
postponed the consideration of the bill for an
indefinite period.
At that time, experts and employers criticized the
proposed innovations, violent discussions raged
in society. In particular, it was criticized that in
the absence of a developed stock market in the
country, there would be nowhere to invest, so
that funds could multiply and be protected from
inflation. Experts also expressed doubts that the
savings of Ukrainians will really be reliably
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protected in non-state pension funds (Zhyrii,
2023).
On April 17, 2023, the Draft Law on Cumulative
Pension Provision No. 9212 (2023) was
registered in the Parliament. According to the
published document, it is envisaged to establish
mandatory participation in the cumulative
pension system of all categories of working
persons before they reach the age of 55 and
mandatory payment of retirement fees by
employers in favor of such employees.
Employers will pay 1% in 2023, 1.5% - in 2024,
2% - in 2025 of the amount of wages of
employee. At the request of the latter, the amount
of his (her) fees can be increased. The state will
co-fund such payments on principles of parity
within 3 % of the moderate salary. Funds of the
cumulative system, according to the draft law,
are the property of system participants in the
amount accumulated in their individual
accumulative pension accounts, and in the event
of a person’s death, ownership of pension
savings passes to the heirs.
Asset governing of non-governmental retirement
funds will be carried out by authorized asset
management companies. From 2026, system
participants will be able to independently choose
the fund, in which they will form their retirement
savings. The latter are saved from depreciation
by investing in more conservative financial
instruments.
Having studied the specified Bill, the Ministry of
Finance of Ukraine (2023) notes that State
budget expenditures for the implementation of
the provisions of the act will amount to UAH
45.6 billion in 2024 (under current conditions).
In addition, its performance will require
additional funds from the State budget for the
creation of an authorized pension fund, as well as
for wages and logistics for the activities of the
Board of the authorized pension fund, the amount
of which cannot be determined due to the lack of
initial data.
Under martial law and difficult financial and
economic condition in the country, the
implementation of the act will divert funds from
a limited financial resource necessary to fulfill
the urgent needs of the State, which require
priority provision, namely: for the needs of the
army, the defense ability of Ukraine, the
protection of the safety of the population, support
the most vulnerable segments of the population,
medical care, etc. In addition, Ukraine signed the
Memorandum on Economic and Financial Policy
until 2027 with the International Monetary Fund,
which provides for a number of quantitative and
indicative goals, structural beacons, the
fulfillment of which is a guarantee of trust in
Ukraine and the basis of close international
relations. Therefore, first of all, it is necessary to
discuss the issue of possible support for the
incorporation of the cumulative system with the
representatives of the International Monetary
Fund.
The Pension Fund of Ukraine (2023) does not
support the draft law in the proposed version,
because its norms change the structure of the
pension system and the functions and duties of
the Pension Fund of Ukraine. Proposal for the
creation on the basis of the State Register of
mandatory state social insurance of the Unified
Social Register, contains gaps in the legal
regulation, primarily regarding the definition of
the purpose and structure of the latter, the use of
its data, and the absence of transitional
provisions regarding its implementation will
create a conflict in the implementation of the
relevant provisions.
The content and procedures of information
exchange need to be detailed; there is no legal
certainty regarding the administrator of the
Unified Social Register, since the Bill contains
contradictory definitions and the order of
authorization. The proposed method of
establishing and the size of the single
contribution will cause a decrease in income
from its payment for pension insurance, which
necessitates the simultaneous legislative
provision of compensators for losses of the
Pension Fund of Ukraine budget, etc.
In this regard, the State Tax Service of Ukraine
(2023) observes that the issue of introducing the
second level of the pension scheme should be
considered only after an objective determination
of the growth of the country’s economy, which
will enable effective allocation and using the
funds of the mandatory cumulative pension
provision, because otherwise the collected funds
will not give the desired profit for normal
functioning of this system, which will lead to the
discrediting of its very idea and reputational
losses of the State. These risks only increase in
the conditions of the economic crisis caused by
war in Ukraine.
It is worth noting that during the period of the
State's independence, this is already the fifth
draft law that deals with cumulative pension
provision; in addition, draft laws No. 2683 and
No. 9212 are practically identical, that is, the
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initiators of the latter did not consider the
comments made to its "predecessor", which is
why they encountered problems and negative
conclusions during its consideration. The main
problem that prevents the adoption of the
document is the extremely difficult economic
situation in Ukraine, which has significantly
worsened against the background of hostilities.
At the same time, our pension system really
requires reform; according to forecasts by 2050,
the ratio between the population of retirement
and working age will almost double. In addition,
the future of the pension system and the economy
in general will be determined by three factors:
how long the war will last; how many Ukrainians
will return home from abroad; how quickly jobs
can be restored or created (Sokolova, 2023).
So let's consider how the problem of the
transition to the cumulative system was solved in
some European countries.
According to Ovcharenko (2018), Great Britain
is a good example of reforming in conditions of
uncertainty. Since 2012, a savings system has
been introduced there with a parity and
insignificant amount of contributions from
employees (1%) and employers (1%).
The system worked for almost five years before
the increase in contributions. This was specially
done to be able to work out all possible questions
not in theory, but in practice.
Thus, in the period from October 2012 to
February 2018, the British government
introduced a system of automatic accrual of
occupational pensions. Employers are required to
register all pension-eligible workers between 22
years old and the retirement age, who earn more
than £10,000 in wages, to a qualifying pension
scheme. In 2018/2019, minimum contributions
were 5% of income (from £6,032 to £46,350). In
April 2019, minimum contributions increased to
8% and remain at this level (OECD, 2021).
To encourage automatic admission, the officials
created the National Employment Savings Trust
(NEST), a defined contribution workplace
pension scheme, to ensure that all employers can
access a quality, understandable and affordable
retirement system. NEST has a commitment to
take all employers willing to set up a pension
scheme with them, regardless of their income
level.
Prior to the launch of NEST, a transitional body,
the Personal Accounts Delivery Authority
(PADA), was established to consult employers
and employees on the issues of personal
accounts. PADA provided clarification on
different matters of the system’s operation and
organization before handing these obligations
over to the NEST (Legislation, 2007).
As Kravchenko (2015) emphasizes in his
research, achieving justice in pension provision
is becoming more problematic every year, so
many countries have recognized the need to
reconcile the interests of different generations,
which go beyond the sphere of purely public
finances. This approach was reflected in
thorough preparatory measures for the
implementation of the pension reform. Sweden is
an exemplary example.
In Sweden, the pension reform took place from
the mid-1980s for 15 years, and began with
discussions and explanatory work and ended
with the final restructuring of the entire pension
mechanism. In 1984, the State commission,
which studied the pension system until the end of
the 1980s, was created. The commissions
conclusion was as follows: if nothing is changed,
by 2020 the pension system will face
insurmountable financial difficulties. At the
beginning of 1991, a report was presented, in
which it was proposed not to change the pension
structure completely, but to introduce indexation
tied to the rates of economic growth, and not to
prices; raise the retirement age and increase the
length of service to obtain a full pension. A
parliamentary group on pension reform, which
included the members of all parties represented
in the Swedish parliament at that time, was
formed. The group was headed by the Minister of
Social Policy. In 1994, a public discussion of the
reform began, and in 2001, Swedes received a
pension under the new scheme. Currently,
Sweden’s pension system is one of the best
among European countries (Kravchenko, 2015).
Currently it consists of three parts: state pension,
occupational pension from the employer and any
savings or assets the employee may have.
The state pension is based on the total income
received by a person in Sweden throughout his or
her working life. Every year that a person has
worked and paid taxes, his (her) salary is
deducted for this type of pension.
The Swedish Pensions Agency managers and
repays the national state pension, which consists
of:
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income pension (16% of pension income and
other taxable taxes are credited to income
pension);
income pension complement (paid in addition to
the state pension. An income-based
supplementary pension can be received by a
person living in Sweden or within the EU/EEA
or Switzerland or countries, with which Sweden
has signed a social security agreement. The seize
of the payment depends on the state and old-age
pension from other EU/EEA countries or
Switzerland);
premium pension (every year 2.5% of pension
income and other taxable payments are deducted
to this part of pension);
guarantee pension (if a person made or no profit
during his (her) working life, he (she) is entitled
to this the of provision. This is a fundamental
state-guaranteed maintenance which depends
mainly on the amount of the state pension, the
length of residence in Sweden, as well as on
marital status).
The longer person works, the higher his (her)
monthly pension will be; this is because the
person will receive provision for fewer years and
because he (she) will continue to earn towards his
(her) pension. Wage dynamics, as well as the
individual’s chosen premium pension funds, also
affect the size of the pension (Swedish Pensions
Agency, 2023).
Note that in Sweden, the employee has the
opportunity to choose a private pension fund or
even several funds from 800 pension funds,
where he (she) places his (her) savings with a
minimum return of 3% per annum. Investments
by pension funds are strictly regulated, including
restrictions on investments in real estate or direct
loans. Pension funds are supervised by the
country’s Ministry of Finance, which conducts
an annual financial audit and reports on the
funds’ work to the Parliament (Kravchenko
2015).
In contrast to Sweden, which needed changes
primarily for demographic reasons, Poland
during the pension reform got rid of the legacy of
socialist times. In fact, the old pension system
was canceled and a new one was introduced. The
reform process lasted only 2 years.
In Poland, a fee of 19.52% of wages (or 16.6%
for those born after 1948 and decided to join the
II accumulation level) is credited to the
conditional accounts of individuals. The
conditional interest rate is set at the level of 100%
of the salary increase in the amount covered, but
not less than price inflation.
In addition, sub-tabs in the Social Insurance Fund
(ZUS) are also provided. Valorization of fees to
sub-tabs differs from payments to ZUS accounts;
in addition, they can be inherited. When reaching
the retirement age, the stored capital is divided
by «value g» to calculate the amount of provision
that the individual will receive. “Value g” is the
average life expectancy at retirement age; this
process is equitable to the cancellation procedure
in the cumulative pension scheme. This value is
calculated using the life charts released by the
Central Statistical Office.
The maximum amount of contributions and
deductions from wages, which is included in the
pension, is set at 2.5 times higher than the
average base amount for the previous calendar
year. In 2019, it amounted to PLN 142,950.
Pensions are subject to periodic indexation based
on the level of inflation (OECD, 2019).
Germany’s pension scheme is one of the best
among such systems worldwide. This rating is
also constantly improving, as the German
government is permanently working on its
reform and optimization.
Aware of the fact that the country’s population is
aging, the government has carried out numerous
reforms of the pension system since 2002 to
make it affective: we talk about gradual increase
in the statutory retirement age and a reduction in
the maximum size of the state pension.
Germany’s pension system combines a solidarity
system, in which certain amounts are deducted
from the wages of the working population to
provide benefits to pensioners, with
supplementary pension plans. The point of the
latter is that individuals (on their own or through
a professional system) make payments to pension
plans to increase the amount they acquire from
the State. These models create three levels of the
German pension scheme.
In Germany, participation in the Deutsche
Rentenversicherung (RV – German state pension
insurance system) is mandatory for everyone
working in this country (as well as for many self-
employed workers); at the same time, each
employee is "evaluated" according to his annual
earnings. Each must contribute 18.6% monthly
(9.3% both employer and employee) from bare
salary to maximum contributions
(Beitragsbemessungsgrenze). As of 2023, this
amount is €7,300 in the BRD and €7,100 – in the
DDR. After registration in the pension system, a
person receives a unique social insurance
identifier (Sozialversicherungsausweis). When
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getting a new job, he (she) needs to present it to
the employer to track pension contributions.
Contributions for a year with the median wage of
all contributors (€43,142 in 2023) earn one
"pension point" (Entgeltpunkt). Payments based
on lower or higher revenue yield less or more
pension points respectively. When an employee
retires, the pension points are added up to define
the corresponding allowance. If he (she) retires
early or later, the benefits will decrease or
increase accordingly.
Collective pension schemes, into which
employees contribute through their employers, is
the second component of the German pension
system. They have become quite popular in this
country – more than 60% of the population
participates in this program, though it was
created as a supplement to the state pension plan.
Employers are not obliged to offer pension
schemes to their employees, but State benefits
and tax incentives make them inviting. They are
managed either by the corporations themselves
or by retirement associations acting on their
behalf.
The third component of retirement system is
private pension plans set up through banks and
insurance companies. The government motivates
the German population to contribute to them by
providing certain preferences or tax breaks. At
the beginning of their creation in the 2000s, they
were not in demand, but recently they are
becoming more and more popular (Expat info,
2023).
Conclusion
The issue of pension reform in Ukraine is
currently urgent, because under severe economic
crisis caused by a full-scale war, a negative
demographic situation, which has significantly
been worsened due to the outflow of the
working-age population abroad, we need to solve
the problems of the shortage of funds and the
meagerness of pension benefits for which older
persons cannot exist.
Currently, the first level of the pension system
operates in Ukraine – the solidarity system of
mandatory pension insurance; the second level of
the pension system (cumulative pensions) has not
yet been implemented, despite five draft laws
submitted during the period of independence of
our state, designed to regulate this issue, and
active discussions on this issue by politicians,
economists and the public.
The solidarity-cumulative model, which is
characteristic of European countries, was taken
as a basis by our State to create its own three-
level pension system: state pension (cumulative),
mandatory insurance and accumulative
(corporate or personal). However, when trying to
implement it, the state leadership encountered a
number of shortcomings in both the legislative
provision of this system and the resistance of the
population.
This is because Ukraine has one of the lowest
levels of financial literacy among OECD
countries and even neighboring middle- and low-
income countries according to the USAID
research (2021). The concentration of Ukrainians
on the short-term perspective does not allow
them to think about the future, so the expectation
of a gradual increase in personal savings,
unfortunately, has no prospects.
Therefore, the primary task is to increase the
financial literacy of Ukrainian citizens, to
motivate them to honestly pay taxes and
contributions, to accumulate pensions on their
own, deducting a small part of their salary to the
Pension Fund, beginning from the moment of
starting their career. In this regard, the experience
of Great Britain, where a special body was
created to provide clarifications on the
functioning of the personal account system, will
be useful.
The calculations of the World Bank indicate that
in order to ensure at least the current level of
pensions in the future, contributions to individual
accounts should be at least 10%. But first, to get
the system up and running, you can start with a
1% deposit. A higher percentage of deductions in
the first stage will create opposition from both
employees and employers; and under current
conditions, it is impossible at all. According to
this principle, the reform in Great Britain was
started (Ovcharenko, 2022).
Another urgent question is whether the State will
be able to protect these deductions, as the draft
law does not contain guarantees for the return of
contributions. Note that such guarantees are not
available in most countries of the world, with
some exceptions (Australia, Hong Kong,
Singapore, Switzerland). However, in the
conditions of total uncertainty and the extremely
low level of trust of Ukrainians in financial
institutions, it will be difficult for government
officials to convince our citizens of the reliability
of such a system.
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/ July 2023
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In addition, the accumulative pension system is
impractical if the inflation rate in the country is
high (as it is currently in Ukraine). To
compensate for it, 35% of the salaries of
Ukrainians must be deducted, which, clearly, is a
utopia.
However, we have no other options, except for
the introduction of a cumulative pension system;
the State will soon simply not be able to cover the
growing deficit of the Pension Fund. So, the
sooner the legislator eliminates the errors
revealed by the competent institutions in the
relevant draft law and adopts it to regulate this
system, the sooner the opportunity will appear to
implement this difficult and unpopular, but so
necessary project.
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