Why Ukrainian pensioners are poor: an economist identifies the main problem
20 March 14:48
Even if the government raises the minimum pension, this will not solve the main problem of the Ukrainian pension system. The reason for the low payments lies in an outdated model that has remained virtually unchanged since Soviet times. Economist Andriy Novak made this statement in an interview with the YouTube channel "Komersant Ukrainian".
The economist noted that the current model operates on a “common pot” principle: people pay contributions to the Pension Fund, and then the state effectively determines the size of their benefits at the time of retirement. Because of this, there is no direct link between how much a person earned during their lifetime and the pension they receive.
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“We effectively have no direct link between a person’s salary, their length of service, and the pension they will receive. This is precisely the main flaw of the single-tier system,” Novak noted.
According to him, most developed countries operate a multi-tiered pension system, where mandatory funded accounts and voluntary savings exist alongside state payments. This is precisely what allows people to have significantly higher incomes after retiring.
“About 72% of tourists worldwide are retirees. They can travel because their countries have multi-tier pension systems where people save money throughout their lives,” the economist explained.
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In his opinion, Ukraine needs to introduce at least a three-tier model. Specifically, a mandatory savings tier, where a portion of one’s salary is automatically set aside into a personal pension account.
“If at least 5% of every paycheck is automatically set aside into your personal account and accumulates over decades, a person will have a significant amount of their own money by the time they retire,” Novak concluded.
