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Ukraine facing ‘pensions timebomb’

UKRAINE – The Ukraine is in urgent need of reforms to its pension system, but it is unlikely that changes will be brought in until 2005 at the earliest.

Like many other eastern European countries, Ukraine is sitting on a pensions-time bomb. The birth rate has fallen from 2.3 in 1960 to 1.1 in 2000, and the average age in the country is now between 35 and 40. Nearly 30% of the population are pensioners – around 14.4m people, and it is estimated that by 2026 the dependency ration will be less than 2.1.

Various reform proposals are currently being considered by the Ukraine government. It is possible that a second pillar system will be introduced by 2007, which would be administered by the pension fund of the Ukraine. Occupational pension schemes would be outsourced to a least three asset managers, chosen from international tender.

A voluntary retirement system based on the Western European model could also be established.

Other issues that will need to be considered suggests Greg McTaggart, director of the PADCO/USAID pension reform implementation project for the Ukraine, speaking at a conference in London today. “Whether the current retirement age of 55 for women and 60 for men should be increased needs to be questioned, as does whether the age of retirement should be equal for men and women”, says McTaggart.

Whether privileged pensions be axed, or compromised, and how to fund pensions for the country’s agricultural community are a further two points to be raised by McTaggart.

McTaggart believes there is huge potential for fund managers and financial services in the Ukraine as a result of the forthcoming pension reforms. The Ukraine has seem a growth in GDP of around 6 or 7% over the last two years, and the government is keen to obtain EU membership. Ukraine currently only has a marginal amount of resources allocated to the financial services, which could open doors to many other European financial institutions.

Reforms may not be introduced until at least 2005, but it is one country to watch says McTaggart.







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