Ukraine could switch to obligatory pension saving schemes only after martial law is lifted - Ukraine-IMF statement

MOSCOW. July 10 (Interfax) - Ukraine will continue collaboration with its development partners to establish well-regulated and fully funded obligatory pension saving schemes when the necessary preconditions are put in place after the removal of martial law and when medium-term fiscal risks are mitigated, Ukrainian media report quoting a statement signed between the International Monetary Fund and Ukraine based on the first review under the Extended Arrangement under the Extended Fund Facility (EFF).

"The authorities have reaffirmed their commitment to maintain the stability of the pension system. The potential introduction of a second pillar fully funded pension scheme is being debated, although the authorities have committed to move in this direction only after Martial Law is lifted, and a careful review of all necessary preconditions is conducted," the statement says.

Ukraine said it would refrain from introducing new special pensions or privileges, providing further discretionary benefit increases, and adopting changes that would lead to lowering the effective retirement age.

"We will ensure that any proposed legal amendments, introduced both by laws and by-laws that will increase pension expenditures are accompanied by a medium-term fiscal and budgetary impact analysis and a clear identification of the necessary resources in the amendments to the Pension Fund of Ukraine budget," it said.

In the IMF experts' view, the focus should be on enhancing the first pillar of the pension system, ensuring that it remains rules-based and financially viable, especially after the end of the crisis.

"Moreover, an introduction of a second pillar must not translate into a deficit for the pay-as-you-go system. It will be important to ensure that any changes to pension system are accompanied by a medium-term fiscal and budgetary impact analysis, including the budget of the Pension Fund of Ukraine," it said.

Ukraine reaffirmed that, in the context of its medium-term budget framework, it would seek to identify appropriate funding resources for the second pillar and ensure that resources reallocated from the first to the second pillar are replaced by other revenue sources.

A revised system of support for internally displaced persons (IDP) that Ukraine is preparing along with the World Bank should become effective from October 2023, the statement says.