STATE PROVISION OF PENSIONS IN UKRAINE: CURRENT STATUS AND TRENDS OF IMPROVEMENT

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Semeniuk T.V.

STATE PROVISION OF PENSIONS IN UKRAINE: CURRENT STATUS AND TRENDS OF IMPROVEMENT

 

         Оцінено сучасний стан системи державного пенсійного забезпечення в Україні та запропоновано напрями її вдосконалення у контексті реалізації урядової державної програми.

         Ключові слова: пенсійне забезпечення, Пенсійний фонд, пенсійна система.

 

Оценено современное состояние системы пенсионного обеспечения в Украине и предложены направления совершенствования государственного пенсионного обеспечения в контексте реализации правительственной государственной программы.

         Ключевые слова: пенсионное обеспечение, Пенсионный фонд, пенсионная система.

 

         This paper has been appraised the current state pension system in Ukraine and suggested the ways of improving public pensions in terms of state government programs.

         Keywords: provision of pensions (pension administration), pension fund, pension system.

         Formulation of the problem. Satisfaction and protection of material needs for disabled and economically inactive citizens is an important part of social and economic strategy for all countries which is realized through the pension system. Since the main or even the only source of income for pensioners is pension benefits, the aim of pension system is to ensure material well-being and a decent standard of living for disabled citizens.

In the course of transition to market relations, the effective provision of pensions has become one of the most critical issues nowadays, owning to the fact that major part of the pension system in Ukraine operates under crisis conditions over the last few years. As result of unfavorable demographic situation and the strengthening of negative trends in the economic situation such problems occur: increasing demographic burden on the working population, absence of appropriate pensions which would ensure a decent life, instability of the current pension system, discrepancy between pensions and fundamental principles of social protection for disabled people and social injustice in pension system.

Alarming demographic trends and a number of other problems depict inability of pension systems to meet the current needs. Thus, the task of further reform and improvement of public pension system are becoming of paramount importance.

Analysis of recent research and publications. Lots of scientists continually take an interest in the issue of the effective functioning and improving of the pension system. Nowadays the problems concerning functioning of the pension system is a leading factor in strengthening the social security of the country and it is discussed in the works of such scholars as G. MсTaggart, O.P. Slyusarchuk, S.V. Sorokivska and others.

The purpose of the study is to determine the current state of provision of pensions in Ukraine and possible areas for improvement.

Summary of the basic material. The nature of the pension system was the subject of study for both domestic and foreign scholars, but still there is no common interpretation on this phenomenon. In our opinion, the most complete definition of provision of pensions was provided by S.M. Martyusheva who stated that pension administration is a kind of social and material security of citizens, foreigners and stateless people which is realized through a set of legal actions that are also coordinated with payments for disabled senior citizens; these payments are made on monthly basis in the event of social risks such as: disability, old age, loss of a breadwinner and other circumstances directly prescribed by law and protected by the state [4, p. 349].

While studying the pension system in Ukraine, it is necessary to indicate the main principle of this structure as far as they depict the nature and the aim of its functioning: principle of universality, pension rights, different types of pensions, various pension arrangements, the right choice for pensions, principle of providing pensions at a level no lower than the living wage, provision of pensions at the expense of the trust funds or the state budget and the principle of conservation and protection of citizens’ rights concerning pensions, which guarantee the right of every Ukrainian citizen for pension payments and decent quality of life.

In 2004 in Ukraine a new phase of pension reform started with the implementation Law of Ukraine “On Compulsory State Pension Insurance” and “On private pension provision” aimed at solving the problem concerning low level of material well-being of disabled people and creating a fair system of distribution of pension funds. As a result, there has been transition to retirement insurance and establishment of a three-pillar pension system:

  • Pillar I – joint system
  • Pillar II – mandatory accumulation system;
  • Pillar III – voluntary private funded accounts.

Due to the budget deficit of the Pension Fund of Ukraine and many unresolved organizational issues, the functioning only of pillars I and III was provided, whereas the introduction of pillar II is postponed. The introduction of mandatory funded system has great advantages over other components of pensions. One of the huge advantages is the right of every citizen to form additional pension funds that can be used in two ways, firstly, as future pension benefits in addition to solidarity pension system; secondly, it can be demised in accordance with the Civil Code of Ukraine. In addition, pillar II has such peculiarity as personalization of pension contribution, accounting on accumulative pension account and accumulation in Accumulation Pension Fund of Ukraine, the main focus of which is on investment in the economy that also can provide additional investment income to their owners.

The current state of financial stability of pillar I and the possibility of introducing mandatory funded system can be appraised by analysis of income and expenditure from budget of the Pension Fund of Ukraine, which during 2012-2015 remained to be in short supply: in 2015 there were surcharged UAH 18 9 billion that is by UAH 1.8 billion more than in 2014 and is by UAH 2.9 billion less than in 2013. On average, in 2014 pension payments increased by 169.95 UAH or 11.2%, and on January 1, 2015 amounted to 1691.55 UAH. Moreover, during the studied period the dynamics of revenues of the Pension Fund Ukraine was not even. In particular, in 2014 the Pension Fund of Ukraine received UAH 233917,6 million, in comparison with the revenues in 2013, when this sum decreased by 6.5% or UAH 16309,9 million and exceeded the value of revenues in 2012 to UAH 11.2858 billion (5.1%). Own funds account for the largest share of revenues, it equals to 71.3% (UAH 166.928 billion), and this sum is decreasing on annual basis whereas the amount of funds from the State Budget of Ukraine allocated to pension schemes is growing. Thus, Pension Fund can provide pension payments and financial assistance to pensioners in Ukraine to full extent.

However, in 2014 the total expenditures of the Pension Fund of Ukraine decreased, the value amounted to UAH 248.9451 billion that is by 0.6% less than was in 2013 and by UAH 15.2492 billion more than was in 2012. The growth of total spending was the result of additional costs appeared because of new payments and recalculation of pension benefits, which were conducted in accordance with laws and regulations.

On the other side, the current pension system in Ukraine has a negative impact on the level of pension expenditure in GDP. For example, till 2004 the share of pension costs was approximately 9% of GDP, after the reform, this ratio rapidly grew, and in 2009 it reached a record value – 18.1%, in terms of the fact that expenditure has not been reduced or eliminated, GDP, due to the economic crisis, sharply fell. In 2014 the value of the studied indicator reached 17.2% that is compared to many European countries, is the largest one. Burden on workers, calculated by the ratio of contributors and pensioners, plays an important role as well. Particularly, in 2015 10 million workers paid for 12 million pensioners, it is predicted that in 2025 the statistics will be the following: 100: 114.

One of the unresolved issues that prevents private pensions from the effective functioning and violates the principle of social justice is the issue concerning payment for certain categories of workers (people’s deputies, prosecutors, civil servants) which is several times higher than the general pension. On January,1 2015 the gap between the minimum and maximum size of pension was 1:17, salary of the Cabinet of Ministers of Ukraine exceeds 15 times, judges and prosecutors – 12 and 6 times respectively, customs officers – 4 times. Thus, the full differentiation of pension levels should be modified based on average earnings of the worker and his/her employment contribution, respecting the principles of social justice.

All in all, despite the implementation of three-pillar structure of the pension system in Ukraine and having the international experience, lots of problems remained to be unsolved. That is why, in 2014 there was approved the Program by the Cabinet of Ministers of Ukraine, which contained the list of changes necessary for the social sphere, and especially for pensions. One of the points of this program is about the establishment of a fair social pension system and the abolition of special pensions, which, in our opinion, should become the priority of the government towards improving the pension system in Ukraine. With the adoption of the Law “On Amendments to Certain Legislative Acts of Ukraine on pensions”, the first steps towards the introduction of “common principles” of pensions for all categories of citizens were made. These new changes were mainly made for such categories as government officials, prosecutors, MPs, judges and others. In particular, occupying above mentioned position, a person  cannot receive pension, in other words, pensioners have the right to choose whether to occupy ”special position” and receive salary or resign and receive a pension [6]. Regarding working pensioners of other categories, the amount of retirement benefits of whom exceeds UAH 1423.5 or 1.5 time of living level, pension is paid at a rate of 85% granted pension but not less than 150% of living level. At the same time, disabled people of I and II groups, disabled veterans of III group, combatants, and members of families of fallen soldiers receive a 100% pension.

According to the Program of the Cabinet of Ministers of Ukraine, high pensions continue to be taxed but I accordance with new changes. In addition, Law of Ukraine “On Amendments to the Tax Code of Ukraine and Some Other Legislative Acts of Ukraine on Provision of Balance of Budget Revenues in 2016”sets new limits for the taxation of large pension and a new procedure for payment of compulsory pension insurance. From January 1, 2016 single rate of taxation was fixed at 15% for the amounts of pension payments that exceed UAH 4134 (three minimum wages, on January 1, 2016). At the same time, pensions granted to combatants of World War II, disabled veterans and family members of the victims (dead) war veterans are not taxed [1].

Also new changes were applied to the terms of calculation and payment of compulsory state pension insurance for legalization of the labor market and the legalization of wages, the main of what are:
• single tax is imposed on  each insured person, but not on the total payroll or the total amount of financial support;

  • a minimum payment per month per employee is introduced, which is calculated by multiplying the minimum wage, established by law for a month, and for which the wage (salary, income) and single tax rate established for the respective categories of taxpayers is charged;
  • single tax rate for of compulsory state pension insurance is reduced to 22%;
  • the maximum rate of single tax is extended from 17 to 25 of living level for employable population [2].

One of the methods of pension increase is an increase of the retirement age.

In most foreign countries the retirement age is from 60 (for women, Poland) to 66 (US) with a gradual increase to 67. Compared with European countries, in Ukraine the value of this indicator is the lowest, that equals to 55 years. With the adoption of the Law “On measures to ensure the legislative reform pension system”, which entered into force on October, 1, 2011, in Ukraine the retirement age is to be increased gradually to 60 years for women and 62 years for men-civil servants by 2021. However, while increasing the retirement age, life expectancy should be taken into account, for example, in Ukraine it is one of the lowest one, 73 years for women and 62 years for men, unlike in such countries as Germany, France, the Netherlands and Denmark, where life expectancy is from 81 to 84 years for women and 76 years for men. A good example can be taken from Spain, where on December 23, 2013 a new law called “stability factor” came into force, which adjusts pensions to changes in life expectancy in the country.

Conclusions. The system of provision of pensions is one of the most important and main directions of policy of social protection performed by the state as far as it provides pension benefits for disabled citizens of our country, for most of whom it is the main source of livelihood.

Analysis of state pension provision indicates that despite the introduction of a three-pillar structure of the pension system, most social problems are remained to be unsolved. First of all, it concerns the issue of pension payment system and insufficient level of funding. Therefore, in order to improve pension system, the following tasks should be solved:
• increase the retirement age and start gradual equalization of women’s and men’s retirement age;
• eliminate / reduce programs for long-term retirement;
• strengthen control over the process of obtaining disability benefits and assessment of working conditions for eliminating pension administration fraud for these categories of citizens;
• activate non-state pension system by increasing the level of trust and protection of clients’ interests for reducing the load of pension system in Ukraine;
• improve the mechanism of pension taxation, according to which the increase of tax rate will depend on the increase of pension payments that exceed the sum that equals to UAH 4134.

The implementation of all above mentioned measures will create favorable conditions for the development of pension system, which can ensure equal conditions of pension administration for all categories of disabled citizens.

References

  1. 2016-i rozpochavsia zminamy u pensiinomu zakonodavstvi [Electronic resource] // Ofitsiinyi sait Pensiinoho fondu Ukrainy. – Mode of access: http://www.pfu.gov.ua/pfu/control/uk/publish/article?art_id=239063&cat_id=184068
  2. Zakon Ukrainy «Pro vnesennia zmin do Podatkovoho kodeksu Ukrainy ta deiakykh zakonodavchykh aktiv Ukrainy shchodo zabezpechennia zbalansovanosti biudzhetnykh nadkhodzhen u 2016 rotsi» [Electronic resource] // Zakon Ukrainy vid 24.12.2015 № 909. – Mode of access: http://zakon5.rada.gov.ua/laws/show/909-19
  3. Zakonodavchi zminy u pensiinii systemi z 1 sichnia 2015 roku [Electronic resource] // Ofitsiinyi sait Pensiinoho fondu Ukrainy. – Mode of access: http://www.pfu.gov.ua/pfu/control/uk/publish/article?art_id=221302&cat_id=184068.
  4. Kompleksna statystyka [Electronic resource] // Ofitsiinyi sait Derzhavnoi sluzhby statystyky Ukrainy. – Mode of access: http://ukrstat.gov.ua/.
  5. Martiushev S. M. Shchodo sutnosti pensiinoho zabezpechennia pratsivnykiv / S. M. Martiushev // Forum prava. – 2013. – № 3. – S. 347-351.
  6. Pro vnesennia zmin do deiakykh zakonodavchykh aktiv Ukrainy shchodo reformuvannia zahalnoobov’iazkovoho derzhavnoho sotsialnoho strakhuvannia ta lehalizatsii fondu oplaty pratsi [Electronic resource]: Zakon Ukrainy vid 28.12.2014 № 77-VIII – Mode of access: http://zakon4.rada.gov.ua/laws/show/77-19

 

 

 

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