One of the hardest, according to the officials, reforms — the pension reform — will start in Ukraine in a month. Now this issue is being actively discussed within society and the media; The Day has also written about the pension reform several times: about its economic and demographic background, its pros and cons, the people’s attitude towards it, etc. According to a public opinion poll, the thing about the pension reform that people dislike the most is raising the retirement age. Out of the people interviewed, 57 percent expressed a ne-gative attitude to this initiative. However, the pension reform includes not only the retirement age increase, but also the introduction of a saving system from 2012 (with monthly payments to a non-governmental Pension Fund), new seniority regulations, the creation of terms for government service and the introduction of an upper limit for pensions. “It’s a hard reform, very hard. It has lots of nuances. It is politically unfavorable. Everyone has been afraid of it till now. However, if we don’t resolve this problem today, we’ll never have a united society. We have to accept the challenges of the pension reform and carry this reform out honestly,” said former Deputy Prime Minister for the Economy Serhii Tihipko [now deputy prime minister for social policy – Ed.] during a meeting on pension reform.
WHAT ARE THE CHALLENGES AND WHAT SHOULD PEOPLE BE AFRAID OF
First of all, women will have to work longer. Those who don’t retire until March 2011 will work half a year longer: every half a year the retirement age for women will rise by half a year until it reaches 60 years in 2020. The reasons for this step are the Pension Fund deficit and high superannuation contributions of those who work. Moreover, if women work longer, they will have a higher seniority and will get higher pensions. By the way, according to the public opinion poll, 64 percent of Ukrainians say that they would agree to work longer if their pensions met European standards.
Says Lidia Tkachenko, Ph.D. in Economics and leading scientist of the Ptukha Institute for Demography and Social Research at the National Academy of Sciences of Ukraine: “The third part of the salary of every working Ukrainian, according to specialists, is paid to the Pension Fund. To pay a pension of 1400 hryvnias to one retired person (not all the pensioners receive such pensions), two working people earning the salaries of 2,100 hryvnias are needed. Today we have a situation where women have the lowest seniority, and hence lower pensions. Taking into account that Ukrainian women have lower wages, [seniority] influences the size of their pensions even more: especially when they introduced the additional factor when calculating the pensions — they raised the estimation of an insurance year. That is why women are at a disadvantage. Keeping in mind the fact that women make up two thirds of all the pensioners, the low retirement age leads to the pensioners’ poverty. We should better equalize the retirement age for men and women. And when we have the gender equality, we should raise the retirement age for both men and women equally.”
As for the retirement age raise for men, according to the bill introduced to the parliament “On the means of legislative provision for the pension system reforms,” from 2013 they will introduce a retirement age increase for male public servants from 60 to 62.
SHOULD WE START WORKING ALREADY AS CHILDREN?
Discussions about the pension reform have shown that the most contentious issue appears to be retirement age increase for women. However, officials have something even “scarier” in store: to raise the necessary duration of the retirement insurance for women by a third (and by ten years for men). Thus, the bill No. 7255 “On the means of legislative provision for the pension system reforms,” offers to raise the required seniority for a minimal pension from 20 to 30 years for women and from 25 to 35 years for men.
What’s the result? After having graduated from a university one should immediately start working legally (it’s still unclear if the five years of studies will be included into the seniority or not). 22 years + 30 (35) = 52 (57) years. A maximum of eight years are provided for the maternity leave, since officials have repeatedly voiced the idea to exclude the maternity leave from the seniority calculations. According to Ukrainian legislation men have the same rights, however even the most loving daddies will have little time to look after their children as they will have to earn their pensions. (By the way, studies held for several years in the most developed European countries have shown that the more time a man spends with his kids the longer he lives. The relation is direct. In Finland and Denmark they have even worked out special programs that encourage fathers to take maternity leaves and look after their children.) If we consider western Ukraine, with almost twenty percent of people work abroad, retirement augurs nothing good. Many Ukrainians will lack seniority for even minimal pensions. People work abroad for five, ten or even more years, then they come back home, buy dwellings and try to find work somewhere, but it’s not that easy. Especially if one wants to work legally. They face the same dilemma again: to work somewhere to have the money now or to think about their pension, to look for legal work (where can it be found?), or to go abroad again? But what about their pensions?
As we can see, the pension reform affects the whole economy — from salaries to business legalization. That is why if the people clearly understand the prospective of the pension reform, they will readily work for them and their future pensions. But many people are already fighting to survive. As the Minister for Social Policy Vasyl Nadraha has emphasized, the new legislation will increase personal responsibility for one’s salary and risk auditing.
FOR THOSE WHO ARE OVER 35
From 2012 on, according to the new pension reform bill, the second level of the pension system will start working — the accumulative one, that will coexist with the current joint pension system. According to Tihipko, this reform will concern 44 percent of those who pay superannuation contributions and will be over 35 years old next year. The government promises that the payments from the salaries of working people (they suggest starting with two percent and gradually going up to seven percent) will allow them to get higher pensions in future. It is also planned that the superannuation contributions to the Pension Fund will be reduced by this sum.
This idea is also good, but who will take control of the money paid by the people? And what payments from those funds will the people get when they retire? “The government doesn’t take control of those funds (the accumulative funds. – Author) in full measure, and the final result is unknown until one retires,” says the senior international counselor for pension reform from the USAID project “The development of capital markets” Greg Mactaggart.
The second level is still being discussed, yet officials have already made a stab at the third level — the voluntary pension insurance. “If we have a second level where the personal superannuation contributions will work and give the investment income, then we’ll be able to introduce a third level, which has already been worked out. Then the people will be able to save a part of their salary in non-governmental pension funds. And then we’ll have a balanced pension reform,” supposes Tihipko.
By the way, at present 82 percent of Ukrainians are doing nothing for their pensions. They count only on the governmental pension. Only seven percent of those who work invest in property and business and only six percent of working people are saving up. Obviously, this is the result of the level of the people’s incomes.
SPECIAL PENSIONS AND THEIR RESTRICTIONS
Currently in Ukraine there are a bit more than 13 million pensioners. It’s a lot, as out of a population of 45 million 800 thousand children make about 13 million, 2 to 3 million (according to other sources up to 5 million) people work abroad, and a bit more than half a million are registered as unemployed. The rest work legally and pay taxes to the Pension Fund, and a lot of people work illegally. According to the Institute for Demography and Social Research, at present there are 10 working people for 4 pensioners. If we take into account only legally employed persons, then there are 10 working people for… 9 pensioners. The situation is too critical to postpone the reforms.
However, there is one more category of pensioners whose pensions provoke discussions within society, namely deputies, officials, judges and public prosecutors. According to the Pension Fund information, this concerns a bit more than 3,000 Ukrainians (those who get pensions of more than 10,000 hryvnias). However, there are pensioners who get less than 10,000 hryvnias, but whose pensions are calculated according to special laws; there is more than a million of such pensioners. The new legislation provides for the limitation of special pensions up to 12 living wages (the living wage slightly exceeds 900 hryvnias). In general, more than two thirds of pensioners get less than 1,000 hryvnias.
It should be noted that The Day has been repeatedly approached by working pensioners asking if they will be able to continue working after the pension reform comes into operation. “Do I have any guarantee from the government that officials won’t throw me out of work as a working pensioner, although I’ll be 60 in a bit more than two years?” The Day’s regular reader, the veterinarian doctor Olha Zlenko from Kyiv asks Tihipko (her question was passed to the deputy prime minister. – Author).
We won’t answer for Tihipko, we’ll only quote the hopes that he voiced to the media: the Pension Fund deficit (the main problem right now) will be reduced by all means, as mentioned by the author, and will also stimulate the people to keep working after they reach the retirement age.
The pension reform bill will be discussed in Ukraine until February 16 (the officials promise to consider all the remarks and suggestions), then they will have parliamentary hearings. The authors of this bill hope to adopt it as soon as possible.
