Dmytro Lubinets, the Human Rights Commissioner of the Verkhovna Rada of Ukraine, addressed the citizens with a statement in which he highlighted the acute problems of the country's pension system. He spoke in detail about the discrepancy between pensions and length of service, social injustice in assigning pensions, and the urgent need for further reforms to improve the situation.
As the Ombudsman of Ukraine, I constantly receive appeals from citizens regarding the low amount of the pension, the discrepancy of its amount with the duration of the insurance period and social injustice in the awarding of the pension.
As of the beginning of 2024, almost 70% of Ukrainians in Ukraine received a pension below and equal to the poverty line determined by the UN for the countries of Central and Eastern Europe!
The decrease in the number of pensioners in Ukraine by almost 400,000 is causing concern. If at the beginning of this year 10.5 million people received a pension, now only 10.1 million people received it.
The pension system has accumulated a number of problems over the past 20 years, which have been tried to reform, but each time there have been problems and shortcomings.
The 2003 reform
One of the stages of the pension reform is the adoption of the Law of Ukraine "On mandatory state pension insurance" dated 07/09/2003. The law defined the structure of the general pension system, but the system of special pension legislation did not undergo any changes. Special pensions of civil servants, employees of local self-government bodies, people's deputies and their assistants, scientific and scientific-pedagogical workers, journalists, judges, and prosecutors had more favorable conditions.
Reform of 2011
The next stage of the pension reform was the Law of Ukraine "On Measures for Legislative Support of the Reform of the Pension System" dated 07/08/2011. This is the first law that attempted to reform both the general and special pension systems.
It aimed to create conditions for balancing the solidarity system and introducing a mandatory savings system. In particular, the law introduced the maximum amount of the pension, which cannot exceed 10 subsistence minimums. The law also introduced restrictions on special pensions.
The retirement age for women has been raised from 55 to 60. The argument was that women's pensions are lower than men's, and this, according to the lawmakers, will correct gender inequality by increasing women's insurance years.
The 2011 reform reduced the number of new pensioners, but did not stop the growth of pension expenses and the PFU deficit, nor did it ensure a fair amount of pension for the majority of Ukrainians. There remains a disparity of pensions between citizens who retired before 2004 and after.
Reform of 2017
Another change took place in October 2017 with the adoption of the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine Regarding Pension Increases", which introduced unified approaches to pension allocation on January 1, 2018.
With the adoption of the Law, the assessment of one year of insurance experience decreased from 1.35% to 1%. The result was a decrease in previously assigned pensions. It is important that in reality the pension continued to be paid in the previously established amount at the expense of additional payments of the PFU, which caused additional expenses from its budget.
Currently, in the solidarity system, having 30 years of insurance experience, the coefficient of insurance experience is 30%. That is, a person who retires receives three times less income. According to the Convention of the International Labor Organization on minimum standards of social security, the pension should be at least 40% of the salary.
The timeliness and completeness of the payment of the single social contribution by the employer has a direct impact on the pension of future and current retirees. In the 2023 Annual Report on the state of observance and protection of human and citizen rights and freedoms in Ukraine, I highlighted the issue of violation of the right of employees of state-owned enterprises under the management of central executive bodies to receive timely remuneration for work.
Salary arrears at such enterprises at the beginning of 2024 amounted to 2.23 billion! This violates the constitutional right of citizens to adequate pension provision.
The reasons for this situation are that the Budget Declaration and the state budget do not provide funds for state-owned enterprises to pay off salary arrears for past periods. The State Budget of Ukraine for the years 2021–2023 partially allocated funds for this, but only for employees of state enterprises of the coal industry.
It is possible to solve this by providing funds for these expenses in the Budget Declaration and the state budget. My Representative for Social and Economic Rights made this comment to the draft Budget Declaration for 2025-2027. The Ministry of Finance drew attention to the fact that repayment of the debt will require additional expenditures from the state budget, the sources of which are not available.
At the end of May 2024, I sent the Commissioner's position to the Ministry of Finance regarding the possibility of providing funds for repayment of such debt in the Budget Declaration and the state budget.
This issue needs to be resolved as soon as possible! If the company is in arrears for the payment of social security contributions, the period of arrears is not included in the employees' insurance experience, and their wages for this time are not included in the pension calculation. Only after the full settlement of the employer with the state will these months be included in the insurance period.
I receive appeals regarding the failure to take into account employees' insurance experience in the event of non-payment of social security by the employer. According to the DPS data, as of January 1, 2024, the amount of arrears for the payment of the single installment amounts to UAH 20.5 billion.
The problem can be solved by making changes to the Law of Ukraine "On Mandatory State Pension Insurance". I submitted my recommendations to the Ministry of Social Policy, but this issue remained unresolved.
The Ministry of Social Policy has developed a draft law on the comprehensive reform of the pension insurance system. According to it, when determining the right to a pension, the periods of work of the employees will be taken into account, even if the employer is in arrears for the payment of insurance contributions. However, this is possible if the employer submits a report on the accrual of these contributions in accordance with the law.
I would also like to note that I provided recommendations on changing the sequence of payment by the employer of the single contribution and fines to the Committee of the Verkhovna Rada of Ukraine on social policy and protection of veterans' rights.
The amount of arrears according to the decisions of the courts is almost 70 billion hryvnias.
The adopted legislative decisions significantly changed the approaches to the calculation of pensions. Because of this, many citizens began to turn to the court en masse to restore their rights to a proper pension. At the same time, the PFU systematically fails to comply with court decisions.
The monitoring established that the state is financially unable to immediately pay off all the debt for the execution of all court decisions. Therefore, full implementation of the court decision is possible only if there is a corresponding budgetary allocation from the state budget.
In the budget of the PFU for 2023, funds in the amount of UAH 360 million were provided. According to the PFU, debt payments under a separate budget program began in July of last year, which was enough to pay 6,586 court decisions. Unfortunately, such payments have not started this year. The reason is the non-approval of the PFU Budget for 2024 by the Government. At present, the amount of debt due to court decisions passed since 2013 is almost 70 billion hryvnias!
Please note that in the fall of 2023, the Government announced the renewal of the pension system of Ukraine. One of the planned innovations is the introduction of a point system in the calculation of pensions. It is planned that it will even out the disparities between pensioners who retired a long time ago and recently.
I hope that during the development of the new concept of pension reform, the Ministry of Social Policy and the Government will take into account the shortcomings of previous reforms and the pension system will become fairer and more transparent.
