Director of IMF’s European Department: Ukraine’s pension system faces significant challenges

"Ukraine’s pension system faces significant challenges that, in many respects, are considerably more acute than in other European countries, that are also confronted with aging societies," Poul Thomsen, Director of the IMF’s European Department, said in an interview with Ukrinform.

Mr. Thomsen explained that Ukraine had a particularly large number of retirees per worker, which makes pension spending very large as a percentage of GDP “even though the value of individual pensions is relatively small.” Thus, "the pension system is very costly for current and future generations, while at the same time it provides a very small pension which is perhaps socially not sustainable in the long run."

According to the Director of the IMF’s European Department, "this problem was exacerbated by the sharp reduction in social security contributions last year that doubled the gap in the pension fund’s finances, and which needs to be covered from the budget. While some efforts to make the system more balanced have been implemented, for example by eliminating special pensions last year, these have been far from enough."

Mr. Thomsen listed a number of measures that would help to stabilize the situation with the Pension Fund: “Ukraine needs to reduce the inflow of retirees into the pension system. And here all options should be on the table, ranging from reducing the scope for early retirement to increasing the general retirement age, as most countries have done in the world.”

The Director of the IMF’s European Department recognizes the complexity of these measures, "as the impact of these decisions on the pension system’s finances will be gradual and only have an effect over time, it is of paramount importance to take decisions now. But this is not about budgetary savings only. The stability of the system has been preserved by cutting pensions to levels that are not adequate. The challenge is to place the system on a sound footing so that better pensions can be provided to future generations."

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