Accumulative pension in Ukraine: how the new system will work

This was reported by the Pension Fund of Ukraine. Ukraine

currently has a solidarity pension system.

Its principle is that working citizens pay contributions to the Pension Fund, and enterprises also make corresponding deductions. The fund then pays pensions to current pensioners.

However, due to the decline in population, this model is becoming increasingly difficult to maintain each year.

That is why Ukraine is preparing a pension reform that provides for the launch of a cumulative pension insurance system.

Minister of Social Policy, Family and Unity Denys Ulyutin announced that the reform plans to transition to a multi-level pension model.

It is expected that pensions will consist of three parts: solidarity, professional or special, and voluntary accumulation.

This approach is intended to make the system more transparent and fair, as currently even people with the same length of service and income can receive different pensions.

The solidarity part will directly depend on the amount of contributions paid.

The longer a person has worked and paid contributions, the higher their pension will be.

It is expected that for certain categories of citizens, in particular educators with extensive work experience, pensions may increase by one and a half to two times.

They're also looking at a basic payment for those who don't have enough insurance experience.

Its amount is planned to be determined in the state budget for the relevant year, and it should cover basic needs.

They want to keep special pensions, but take them out of the solidarity system by creating a separate professional level.

The possibility of early retirement on the basis of preferential insurance experience is also planned to be retained.

At the same time, until the general retirement age is reached, payments in such cases will be made only from the professional part.

The calculations will take into account not only the number of years worked, but also the amount of contributions paid during that time.

The full transition to this model could take more than 10 years if it starts in 2026-2027.

A separate part of the new system will be a cumulative pension.

This is a mechanism whereby citizens will be able to make contributions in addition to the mandatory single social contribution in order to increase future payments.

ICTV Facts describes this part as a voluntary cumulative pension.

At the same time, the Pension Fund of Ukraine notes in its explanation that the second level of the pension insurance system is based on the accumulation of funds of insured persons in the Accumulation Fund or in the relevant non-state pension funds.

These funds will be used in the future to finance the costs of lifetime pension insurance contracts and one-time payments in cases provided for by law.

The Pension Fund emphasises that, unlike the third level, which has long been operating as a voluntary accumulation system through non-state pension funds, the second level must be mandatory.

The essence of the accumulation system is that part of the mandatory contributions to the pension system will be accumulated in a special fund and recorded in the individual pension accounts of citizens.

These funds will be invested in the Ukrainian economy to generate investment income.

The Pension Fund notes that the accumulation system provides for mandatory participation of citizens aged 18 to 35 and voluntary participation for persons over 35.

The funds accumulated in pension accounts will be the property of the citizens themselves.

They can be used after reaching retirement age or in other cases provided for by law.

Such cases include, in particular, disability or moving abroad for permanent residence.

It is expected that the contribution rate will increase gradually - by 1% each year, starting from 2% to 7%.

At the same time, there should be a redistribution of pension contributions between the employer and the insured person.

Among the advantages of the accumulation system is the possibility of inheriting accumulated pension savings.

It also provides for the full or partial use of funds before reaching retirement age in critical life situations, to pay for children's education or to purchase real estate.

Another advantage is that only those non-state pension funds that meet the criteria clearly defined by law will be allowed to participate in the second level.

Ultimately, the reform should change the very approach to pension provision.

The size of future pensions will increasingly depend on an individual's personal labour contribution throughout their life and on whether they take advantage of the opportunity to accumulate additional funds.