Ukraine to refrain from new special pensions, to limit additional benefits on top of pensions' contributive part - memorandum with IMF

MOSCOW. Oct 23 (Interfax) - Ukraine's pension system remains complex, and the ambiguity in the law has given rise to numerous court cases with adverse outcomes for the budget, a situation that requires a solution, Ukrainian media said, citing the updated memorandum of economic and financial policies under the fifth review of the Extended Fund Facility program.

"In the next few years, we plan to work on a comprehensive conceptual framework to improve and simplify the pension system and are reviewing the possibility of introducing a second pillar of the pension scheme, when conditions are in place," the memorandum said.

Amendments to the legislation to ensure the immediate enactment of an article that designating a statutory instrument, or its individual structural element, as unconstitutional shall not reinstate a previous statutory instrument, or its individual structural element. Presently, this article of the "On Legislative Activity" law shall take effect a year after martial law is lifted in Ukraine.

In addition, Ukraine pledged in the memorandum to pass new legislation prohibiting any changes to the pension system through unrelated legislation (i.e., outside the pension law).

"We will refrain from passing any new legislation that would give rise to additional pension-related contingent liabilities," the memorandum said.

Any proposed legal amendments that would increase pension expenditures need to be accompanied by a medium-term fiscal and debt sustainability analysis, and a clear identification of the necessary resources in the amendments to the Pension Fund of Ukraine budget.

"We will refrain from introducing new special pensions or privileges; providing further discretionary [...] benefit increases; and modifications that would lead to a lowering of the legally defined retirement age," the memorandum said.

In the near term, Ukraine will take measures to limit the amount of additional benefits paid to certain categories of pensioners, on top of the contributive part of their pensions.

"We will also offer a unified approach to the annual increase of all pensions assigned in the pension system, exclusively through the indexation mechanism. In addition, we will improve the targeting and prevent the abuse of certain pensions supplements, by clarifying eligibility criteria," it said.

As reported, the Ukrainian government approved the Pension Fund's budget on October 11, setting the fund's own revenues at UAH 563.9 billion, state budget financing of pension programs and payments of housing subsidies and benefits at UAH 247.1 billion and UAH 45.9 billion, respectively (total revenues including the fund's remaining balance at UAH 863.7 billion), and expenditures at UAH 860.9 billion.