Ukraine’s pension system is in urgent need of reform. Its first pillar, a compulsory payas-you-go system, generates severe deficits, which have to be closed by transfers from the central Government. In 2010, the Pension Fund’s deficit amounted to 2.5% of GDP. Consequently, the pension system is to a large extent responsible for the strained fiscal situation in the country. In order to reinstall fiscal stability and to stabilise state debt (in relation to GDP), a rather topical issue throughout the world, a reform of the pension system is indispensable.
Accordingly, the Government recently submitted a Draft Law on pension reform to Parliament. The main features of the Draft Law are a gradual increase in the retirement age of women from currently 55 to 60 years, a less generous approach regarding special pensions and an increase in the years of contributions for obtaining a minimum pension.
While the overall impact of the proposed measures will be rather limited in the shortterm, it will eventually balance the pension’s finances. As for the individual measures, our analysis shows that they are necessary.
At the same time, we do not consider the introduction of a second pillar, i.e. of the compulsory and personalised accumulative system, as a mid-term priority of the Government. In our view, the focus should remain on the financial consolidation of the first pillar.