KIEV, Ukraine -- The pension reform, initiated by President Viktor Yanukovych, was announced today. The Cabinet of Ministers of Ukraine submitted the draft law on pension reform to the Parliament.
The draft law intends to bring the Ukrainian pension system into compliance with European standards, which include creating alternative pension funds, in addition to the only existing government fund, and raising retirement age.
The key development that the pension reform aims to introduce is the three-tier system. This includes so-called mandatory state unfunded, mandatory state funded, and voluntary private pension schemes.
Existing in most of the EU countries, such a system enables an individual to accumulate any size of pension that he or she would want to receive at retirement.
The key elements of the draft law also include raising of the retirement age, cutting down the maximum pension size, and creating savings funds.
The non-governmental funds will be created to operate along with the existing governmental one to secure pensions through insurance companies. Announcing the reform, the Prime Minister of Ukraine Mykola Azarov said: "Decreasing of the Pension Fund's deficit is not the main goal of the reform.
The deficit itself will be liquidated in three to four years. The reform's main objective is to create an opportunity for people to accumulate a pension that they need or want, based on their revenues. The pension savings funds will become both a guarantee of decent pensions and a source of long-term investments for the country."
According to the Prime Minister, the existing pension system has been very unbalanced, causing a huge gap between different layers of society. While the minimum monthly pension in Ukraine is 723 UAH ($90 USD), some people receive up to 40 thousand UAH ($5,000 USD) per month. Therefore, the draft law, if enacted, will reduce the maximum pension size.
As the Ukrainian population is aging and the Pension Fund's deficit is growing, the draft law foresees gradual increase of the retirement age for women from 55 to 60. It is planned that the process will take 10 years by raising the retirement age by 6 months each year