Top Level Round-table Discusses Next Step in Pension Reform
"The Mandatory Accumulation System is a long awaited step in improving pension provision for Ukraine's younger generation," Oleksandr Peklushenko, the Chairman of the Verkhovna Rada Banking and Finance Committee, said at the opening of a government-level round table on key aspects of Ukraine's pending pension reform. Held at the initiative of the Verkhovna Rada Banking and Finance Committee, with technical support from the USAID Capital Markets Project, the meeting brought together Ukraine's Vice Prime Minister Sergiy Tigipko, parliamentarians, representatives of central executive authorities of the non-state pension provision market, international organizations and leading experts. They discussed timeline and major components of the implementation of a Mandatory Accumulation System (or Pillar II) to complete the establishment of a functioning multi-pillar pension system in Ukraine.
"We are meeting today to discuss key issues of mandatory accumulation system implementation in order to ensure that the Pillar II Implementation Law is adopted before the end of this year. We must do our best to build a pension provision system that will be effective and ensure that the younger generation will receive, through the introduction of the mandatory accumulation system, a better retirement," Peklushenko said.
Volodymyr Matviychuk, Deputy Minister of Labor and Social Policy of Ukraine, informed the audience about the status of the proposals for the draft Pillar II Implementation Law.
Also speaking at the round-table, Borys Zaichuk, the chairman of the Pension Fund of Ukraine, explained how the fund would fulfill its role in administering the Mandatory Accumulation System. Other speakers included Lidiya Tkachenko, Leading Research Officer at the M.V. Ptukhi Institute of Demography and Social Research of the Ukrainian National Academy of Sciences, Oleksandr Kotsiuba, Head of the Department of Pension Insurance Issues of the Research Institute for Labor and Employment of the Ministry of Labor and Social Policy of the Ukrainian National Academy of Sciences, and Dmytro Leonov, the chairman of the Board of the Ukrainian Association of Investment Business.
The mandatory accumulation component of the reformed pension system means that Ukrainian workers’ contributions will flow not only into a solidarity "pot" (financing the pensions of today's pensioners) but also to the mandatory accumulation system, and will be invested by the private sector in the capital markets so as to accumulate over time in the contributor's own "individual account". At retirement, the individual account will be converted into a regular monthly payment with the pensioner receiving two pensions – one earned within the solidarity system and the other accrued from the mandatory accumulation system. According to a 2007 draft law approved at the first reading, the Mandatory Accumulation System will only affect younger participants in the State Pension Insurance System. Those under 35 on the implementation date are the likely participants. Ultimately, up to 7% of the salaries will go towards the mandatory accumulation system.
The Government's Economic Reform Program for 2010-2014 plans to implement the Mandatory Accumulation System by the "end of 2012". But for the government to meet this deadline, a number of measures still need to be adopted legislatively and administratively, and today's round table starts to focus on the legislative changes needed.
Greg McTaggart, a Senior International Pension Reform Expert with the USAID Capital Markets Project, outlined what can be expected from Pillar II. McTaggart explained that investment returns and the amount of administrative charges billed by the funds that might potentially work with Pillar II assets can also have a significant effect on the ultimate pension income.
"These returns and charges are not within the control of the individual participant," he noted, warning that "it is absolutely essential that the legislation provides for strong regulation of the mandatory accumulation system and full and open disclosure of what is happening to participants' money."
For more information about USAID's Capital Markets Project and its activities, please visit www.capitalmarkets.kiev.ua. You can also reach the project's communications at: +38 (044) 379-1375.
The American people, through the U.S. Agency for International Development (USAID), have provided economic and humanitarian assistance worldwide for nearly 50 years. In Ukraine, USAID's assistance focuses on three areas: Health and Social Transition, Economic Growth and Democracy and Governance. Since 1992, USAID has provided $1.6 billion worth of technical and humanitarian assistance to Ukraine. For additional information about USAID programs in Ukraine, please call USAID's Development Outreach and Communications Office at: +38 (044) 492-7101 or visit: http://ukraine.usaid.gov.