Pension reform is long overdue. Today the average pension in Ukraine is UAH 1,715 per month. Funded pension system, so much discussed by experts, is a way out only for young people who can start saving right now. The solution for today’s seniors can be reverse mortgage. This was stated by experts at a briefing held at Ukraine Crisis Media Center.
“Reverse mortgage is a loan that is not supposed to be returned. In other words, it means selling a home in installments. Even when the price of the apartment is fully “paid”, a person need not return it [to the creditor] and live there until death. […] A person may choose either a one-time payment or monthly payments or a credit line,” said Andrii Dub, economist of CASE Ukraine, author of the study. The lender makes calculations based on the average life expectancy. “Depending on the life expectancy, a person can expect a particular sum,” he added.
In theory, not only apartments can be an object of reverse mortgages. “There is another type of real estate: land. More than 1 million seniors have died without implementing their right to property. When the land market starts working, people in rural areas can also use this mechanism by capitalizing their land shares. For Ukraine, this mechanism should be viewed more broadly,” believes Dmytro Boiarchuk, Executive Director of CASE Ukraine. The main criteria according to which such loans are issued include a certain age qualification and residential property ownership certificate, “Reverse mortgages payments will continue for as long as a person fulfils obligations to reside permanently in his real estate (his absence may not exceed 12 months), to pay fees, in particular a property tax, insurance premiums and interest, to maintain housing in a proper condition. If the person does not fulfil obligations, the loan will become reverse, and he will have to repay the loan,” explained Mr. Dub. “The disadvantage is the high cost. It is higher compared with the usual mortgage. As the primary loan will be repaid after the end of the contract the interest will be higher. If a person has received all payments, but continues to live in the property, he must pay insurance and other fees out of his pocket. Besides, he will not be able to move to a residential care home, if such necessity exists,” detailed Andrii Dub.
Today the government spends a third of its funds on pensions. And on average, a taxpayer spends UAH 14,500 annually. Nevertheless, pensions do not provide a decent life. “Usually retirees are on the verge of poverty, getting two dollars a day. This is the absolute verge of poverty according to international standards. They also are below the national poverty line,” informed Natalia Leshchenko, economist of CASE Ukraine, expert on pension reform. “If of a list of 11.938 million pensioners according to the Pension Fund, 2 – 3% apply this tool, it will improve their lives considerably. If this tool is launched, it will compete with other offers on the market, such as life care contracts,” noted Dmytro Koloda, financial Director of the Ukrainian branch of London & Regional Properties, economist of CASE Ukraine, author of the study. However, the experts agree that it is necessary to stabilize the economic situation to enable this tool to work.