The German government has held discussions with the Ukrainian government on forms of bilateral cooperation and mechanisms to help the war-torn country to reform its pension system.
“Future exchange formats – for example, on possible pension reforms in light of challenges posed by demographic change, can have a structured nature, involving the competent public authorities,” said Rolf Schmachtenberg, state secretary in the Federal Ministry of Labour and Social Affairs (BMAS).
The BMAS and the Ukraine’s Ministry of Social Policy have signed a one-year administrative partnership, laying the basis for technical dialogues and future cooperation on the issue of social protection with a focus on pensions, and policies for persons with disabilities, BMAS said.
Schmachtenberg held discussions on pensions on behalf of the German government for the first time with Daria Marchak and Iryna Postolovska, Ukraine’s deputy ministers of social policy, and Ukrainian pension experts, the ministry added.
The Ukrainian government will in November discuss in detail certain aspects of the countries’ pension systems with the Deutsche Rentenversicherung, the manager of Germany’s pay-as-you-go first-pillar scheme.
The Ukrainian government wants to know more about Germany’s earning points system, one important element to calculate the level of pensions, BMAS said.
Potential reforms
Ukraine plans to introduce a new system, based on scores, to calculate pensions to level out differences in the amount of pension received, making sure that every retiree receives a solidarity pension of at least 30% of their average lifetime salary, prime minister Denys Shmyhal said during a government meeting in September.
“Employed people pay a monthly contribution to the [public pay-as-you-go] pension fund [of Ukraine]. The contribution will be converted into scores according to the ratio between the person’s salary and the average salary in Ukraine at a given time,” the prime minister explained.
He added: “If you paid contributions from a salary that is the national average, you will receive 10 points. Above the national average you get, for example, 12 or more points, below the average, 8 points,” he added.
The points are then transferred back to the pension each year, depending on the current average wage to protected them from inflation and devaluation.
The Ukrainian government also plans to add an “accumulative component” to its pension system in 2025, helping to bring the amount of pension received to at least 50% of the average life-long wage, and personal savings account.
Authorities are debating the potential introduction of a second-pillar fully funded pension scheme, committing to move in this direction only after Martial Law is lifted, the International Monetary Fund (IMF) said in its first review of the extended fund facility given to Ukraine.
“Starting 1 March 2024, we will index pensions for the second time during the great war. Next year, we plan to make this indexation, as well as the entire solidarity system, more fair, understandable, and transparent,” Shmyhal added.
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