Kyiv
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Reasons behind protracted pension reform are merely political – experts 

Kyiv, March 15, 2017.

Introducing the second, cumulative level is a necessary step and the only one possible on the way towards the pension reform.

The statement was made by Andrii Bakhmach, advisor to the Vice Prime Minister of Ukraine during a press-briefing at Ukraine Crisis Media Center. “Our pension system has to be transformed. The only way confirmed by the international practice is through introduction of the multi-component system. The second mandatory level is crucial today, as the resources of the pay-as-you-go system are gradually exhausting,” he said.

Andrii Bakhmach added that the pay-as-you-go system “cannot objectively ensure the due level of pension payment,” but de-facto the state has to anyway increase the payment of social benefits through other mechanisms including the subsidies for payment of utility bills.

The Parliament: no consolidated position is in place

According to MP Natalia Veselova, the Parliament does not have the consolidated position as to the pension reform and the issue is not even on the agenda. “Experts disagree in their opinions as to whether the Ukrainian financial system is ready for introduction of the second cumulative level or not. I am very optimistic, as the third level is already functioning. This system is not mandatory: there are 60 state-run pension funds in Ukraine, their overall turnover amounts to about UAH 2,5 billion annually. It is a small amount, but the system works in a stable way and this example can be taken as the basis for introduction of the second cumulative level,” she said.

Natalia Veselova also said that the parliamentary hearings as to the pension reform are to take place in June 2017. “I hope we will start the discussion and will listen to the position of the Ministry for Social Policy and of the government as well as learn their intentions regarding the pension reform,” she noted. The MP reminded that respective draft law had been adopted as the basis and can be introduced for voting in the first reading.

Experts: protraction is grounded on merely political reasons

According to Mariana Onufryk, expert at the Institute for Social and Economic Research, the solutions that are being offered now including those in the preliminary text of the IMF Memorandum demonstrate that the intention is to further protract the reform. She also pointed at the fact that the text of the Memorandum states that the Pension Fund deficit exceeds UAH 140 billion, which is not true. The actual deficit is UAH 84 billion, rest stays with special pensions that the state needs to pay.

“Ukrainian authorities are definitely able to conduct the reform. The draft law, expertise and massive international experience, both positive and negative, are in place. It is also to our benefit as we see what the challenges and what the potential ways out of this crisis are,” the expert noted. She is convinced that the obstacle to the reform is merely political aspects. “There are actors that benefit from the easily controlled pension system, because prior to the elections it allows them to pronounce populist mottos promising increase of pensions to the voters.” Cumulative system is non-paternalistic and provides the pensions that amount exactly to the contributions paid,” the expert emphasized. In other words the cumulative system takes away from politicians the opportunity to say “we will increase pensions” and introduces the opportunity to only say: “we’ve ensured growth of the economy, and so you have your pensions increased.”

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