Pensions vs inflation: why Ukrainians don’t feel the increase in their wallets
20 October 18:57
The average pension in Ukraine rose by only UAH 26.6 over the quarter and amounted to UAH 6,436.8. The chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, Danylo Hetmantsev, wrote about this on his official Telegram channel, "Komersant Ukrainian" reports.
He explained that the annualized growth is close to 10%, but it does not cover the real price dynamics: inflation in September 2025 compared to September 2024 was 11.9%, and the average for the first nine months of 2025 is already 13.9%. In other words, the purchasing power of pensions is declining, despite the formal increase in the nominal value.
Ukrainians receive pensions below the minimum required level: social picture
The problem is widespread: 56% of pensioners receive less than UAH 5,000. This is significantly lower than the actual subsistence level for those unable to work, which, according to a number of estimates, amounted to about UAH 7,091 in June 2025 prices. As a result, households with fixed incomes are the first to face the “inflationary scissors”: basic expenses for food, medicine, and utilities are growing faster than pension payments.
Why the pension calculation formula underestimates the result
According to Hetmantsev, the key technical flaw in the system lies in the calculation formula, which uses the average salary for the last three years, not just one.
This artificially lowers the pension. It is necessary to modernize pensions in order to bridge the gap between the amounts of pensions granted in different years,” wrote the chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy.
He emphasized that in the face of accelerating inflation and nominal wage growth, this methodology mechanically “cools” the calculation base and pulls down newly awarded pensions.
The solution is obvious: to switch to a more up-to-date indicator (for the last year) and to modernize it: to equalize pensions granted in different years to reduce historical inequality in payments.
Indexation should reflect the real loss of purchasing power
Danylo Hetmantsev emphasized:
“The pension indexation formula should be revised to take into account real inflationary losses in purchasing power. This is to avoid a situation where in a few years a pensioner will not receive a decent pension, but actually social assistance.
To protect the welfare of the elderly, the indexation mechanism should correlate with real prices, not with conditional or averaged indicators that lag behind the market. Without this, even periodic increases become “catch-up” increases and do not break the vicious cycle of depreciation.
European benchmark: replacement rate of at least 40%
The economic sense of the pension system is to replace labor income. The target for Ukraine is at least 40% of the last salary at the solidarity level, with the maximum life insurance premiums taken into account.
In general, the formula for calculating and indexing pensions should ensure that pensions replace labor income at a level of at least 40%. At the same time, a person’s contributions during his or her lifetime should be taken into account as much as possible,” explained Hetmantsev.
To illustrate his words, he took the example of two European countries: Germany and Poland.
In Germany, the pension in the PAYG pension system is on average 48% of the last salary, while in Poland it is about 42%. In general, the average pension in EU countries is usually at least 40% of earnings. This approach should be applied in Ukraine as well,” the official said.
Promises and reality: where and why pension reform has stalled
Danylo Hetmantsev reminded that back in 2024, the Government announced the renewal of the PAYG system in 2025: a fairer formula, a guarantee of a basic pension, elimination of gaps between years of appointment, and movement towards the European model.
But today we see no movement in this direction. The draft Budget 2026 does not provide for the funds necessary to launch changes in the PAYG pension system,” summarized the chairman of the relevant parliamentary committee.
“The only solution envisaged in the country’s budget for the next year is to increase the minimum pension by UAH 234, from UAH 2361 to UAH 2595, which clearly does not correspond to inflationary realities.
Danylo Hetmantsev disagrees with these figures. He believes that the pragmatic minimum pension payment for 2026 should be at least UAH 4,700. This increase should be the first step in aligning payments with the actual cost of living.
Read also: The majority of Ukrainians survive, not live: sociologists have recorded a crisis of well-being
The long game: why there will be no sustainability without the second pillar and the capital market
Structural sustainability of pensions is impossible without the full launch of the funded pillar. This requires not only a law but also an active capital market:
- liquid instruments with transparent pricing;
- reliable collective investment institutions;
- reporting and supervisory standards.
Slow progress in the securities market directly hinders the launch of the second pillar, and thus puts excessive pressure on the solidarity system, which is already operating under conditions of demographic aging and military distortions in the labor market.
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Revision of special pensions as fair rules of the game in the country’s economic field
Special pensions for certain categories of civil servants are a separate topic. In a system where the majority of pensioners live below the actual subsistence level, preserving clan privileges undermines the credibility and legitimacy of the reform.
Last on the list, but certainly not least, is the elimination of clan special pensions for certain castes of elected public servants (prosecutors, judges, etc.). I am counting on the support of MPs in this matter,” Danylo Hetmantsev concluded his post on the Ukrainian pension system.
According to the official’s logic, unification of rules, elimination of unjustified special regimes and bringing payments to a single, transparent principle of “how much you paid in – how much you get out ” should be the basic conditions for rebooting the pension system in Ukraine.
After all, today the country is experiencing a decline in nominal growth, which is lagging behind inflation, and a skew towards low payments for the majority.
The technical solutions are obvious: updating the formula and modernizing it, indexing it to reflect real prices, giving budgetary priority to minimum payments, and launching a funded pillar based on an efficient capital market.
Taken together, these steps should provide people of retirement age with not just a survival benefit, but an insurance pension capable of replacing lost labor income by at least 40%. Without this, the average pension will continue to grow on paper, but not in reality.
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