Pension Reform: What Employers Should Pay Attention To
On 11 October 2017, Law No. 2148-VIII "On Amendments to Certain Legal Acts of Ukraine Regarding the Increase of Pensions" dated 3 October 2017 (the "Law") came into force. It requires that employees work longer before they can receive an old-age pension; it introduces an accumulation pension system; and it also amends the procedure for the calculation of the Unified Social Contribution (the "USC").
Increase in employees' length of employment before they can retire
Starting from 1 January 2018, an employee will have the right to receive an old-age pension after reaching 60 years of age if he/she has at least 25 years of employment on record. Prior to 31 December 2017, an employee has to have only 15 years of employment on record in order to receive an old-age pension by the time he/she is 60.
In addition, every 12 months until 2028, the required minimum employees' employment record necessary to receive an old-age pension will increase by one year. Therefore, as of 2028, an employee will need 35 years employment record by the age of 60 to receive a pension.
Implementation of the accumulation pension system
The Law introduces an accumulation pension system from 1 January 2019. Everyone who, as of 1 January 2019, is subject to mandatory state pension insurance will become the members of the accumulation pension system.
The step plan for the introduction of a mandatory state pension accumulation system for 2017-2018 was approved by the Cabinet of Ministers of Ukraine on 11 October 2017. Currently, there is no precise information on how the accumulation system will operate in Ukraine. In particular, it is not yet specified which proportion of the contributions employees and employers will have to pay to the accumulation pension fund or whether this will be the sole responsibility of an employee. The amount of contributions has not yet been established, either.
At the same time, those who, as of 1 January 2019, will have fewer than 10 years until their retirement age, may elect not to participate in the accumulation pension system.
Increase the maximum base for calculating the USC
In accordance with the Law, starting from 1 January 2018, the maximum base for calculating the USC will be equal to 15 times the minimum monthly salary established by law. Taking into account the draft law on the state budget for 2018 that provides for the minimum monthly salary to the amount of UAH 3,723, the base should be UAH 55,845 (approximately USD 2,109 at the current exchange rate).
Currently, maximum base for calculating the USC per month is 25 times the subsistence level (ie, UAH 42,100, or approximately USD 1,590).