Amelin critically assessed the Pension Reform of the Cabinet of Ministers

The Director of Economic Programs at the Ukrainian Institute for the Future Anatoliy Amelin addressed the Verkhovna Rada of Ukraine during the meeting on Wednesday, June 7.

We publish the full text of the speech without amendments.

“I have very sad information for you. Today we are discussing an important issue and its solutions, but we are not talking about the future at all.

The proposed reform is aimed exclusively at “band-aid approach”, it is an optimization of pension expenditures (without raising the retirement age, there is increased the requirement for a length of service to receive a pension).

This reform does not allow achieving the set goals:

▪ Deciding the important issue of the fair pensions accounting, we do not cardinally reduce the share of pension payments in Ukrainian GDP. It is only about slowdown of growth of this share.

▪ The burden on the state budget is not radically reduced.

▪ We do not create conditions for providing Ukrainians with pensions in the future, so we cannot speak about justice.

▪ There are no opportunities for economic growth, that could give an opportunity for good living standards to all Ukrainians.

Even today, the number of pensioners is 30% higher than the number of employees-payers of unified social taxes (12 million people vs 9 million). UST charges cover only 50% of the amount needed to pay pensions. The rest is “taken” from the economy – incl. from investments, roads, other infrastructure objects.

Taking into account the tendency of population aging, in 3-5 years the number of employees will decrease by another 1.5-2 million people, while the number of pensioners will increase up to 15-16 million people. That is, under the basic scenario the number of pensioners in Ukraine will be twice as much as workers.

In 15-20 years, budgetary grants to the Pension Fund will account for 50% of all government expenses. In such situation, we will have constant budget sequestrations, and the issue of raising the retirement age will always be relevant.

For comparison, in implementation of real reform this indicator will drop to 2% by 2050.

Only the introduction of a mandatory savings system will avoid “the pension collapse” and will simultaneously give an impact to the growth of the entire economy. There will be an additional internal Invest-resource in the country – about 2,5-3,0 billion dollars. In 5-year perspective. This will give an additional increase in nominal GDP by 3-5%.

A mandatory savings system – is a world practice that has been successfully implemented in such countries as Australia, Canada, Holland. The ratio of assets of non-state pension funds to GDP in these countries exceeds 100%. And thanks to such system the citizens there have a decent standard of living.

That is why, band-aid approach and leveling of pensions is an important short-term step for the budget and the Cabinet, but not decisive for the social security of citizens today and in the future.

The real reform should enable every Ukrainian to have a guarantee of a dignified life at retirement and to influence the level of his/her pension support.

This can be possible only with a savings system, where every Ukrainian can influence the size of his/her pension, only this can guarantee the Ukrainians the decent living standard and independence from Deputies and Ministers.

We hope that by the end of this year we will see proposals of the real reform from the Cabinet of Ministers, which will be supported by the Parliament”.