Ukraine to terminate special pensions, lay conditions for adoption of funded pension system – Letter of Intent
By the end of 2015, Ukraine's authorities are to approve a pension reform package agreed with the International Monetary Fund (IMF) that revises the parameters of the pay-as-you-go system to make it more sustainable, abolishes special pensions, and lays the conditions for the adoption of a funded system that would complement the pay-as-you-go system, according to the IMF's country report titled "Ukraine: First Review Under the Extended Arrangement," published on Tuesday.
The reform of Ukraine's pension is a structural benchmark of the revised cooperation program between Ukraine and the IMF within the Extended Fund Facility.
"Following the reform measures adopted in March that began to improve the sustainability and equity of the pension system, we will continue with broader parametric reforms to make the system financially viable in the medium term," Ukraine's Letter of Intent to the IMF reads.
"To this end, with technical assistance from the IMF, we will review all parameters of our current pay-as-you-go system and design a reform that will begin to steadily reduce pension expenditure relative to GDP already in 2016," it says.
Among other things, the reform options will include termination of special pensions, which had unjustifiably created a privileged group of pensioners, and further tightening of occupational early retirement options.
"Once these measures, in combination with improvements in contribution compliance, create sufficiently large and permanent fiscal space to finance the cost of a mandatory, fully-funded pension pillar, we will consider the introduction of such a scheme," the letter says.
According to the IMF, this sequencing of reforms will also allow the development and implementation of a plan to strengthen the institutional, technological, and capital market preconditions required for safe, efficient, and transparent operation of the funded schemes. To this end, by end-December 2015, parliament will pass pension reform legislation agreed with IMF staff.
As was reported, Ukraine's Verkhovna Rada on March 2, 2015, passed a bill on amendments to some legal acts of Ukraine regarding pension security, which has introduced a temporary cap on the size of pensions paid to pensioners who continue to work.