It seems preposterous to suggest that a pension system paying an average of Hr 52 in monthly benefits could bankrupt a nation.
But what’s preposterous elsewhere is often true in Ukraine.
It’s true because much of Ukraine’s workforce does not pay the payroll tax that finances pension payments.
The 21st-century nightmare facing developed countries is already a reality in misdeveloped Ukraine at the turn of the millennium: each worker supports at least one retiree. No wonder that for many of the latter the benefits do not stretch to cover rent and utility payments, never mind the cost of food and medicine.
The shadow economy is one culprit: many Ukrainians manage to dodge the taxman and the obligation to support their elders.
So are the current pension thresholds of 64 years for men and 60 for women. They are among the world’s lowest and unaffordable to wealthy nations, much less a struggling post-communist basket case of an economy.
Worse, as with so many other social expenditures, Ukraine does not target its pensions at those who truly need them. A 70-year-old bank owner gets paid just like a lonely babushka for whom a monthly handout is the sole means of support.
Under the pay-you-go system now in effect, the government essentially sticks its head in the sand each year and hopes that pension fund contributions come close to covering expenses.
The end result of such myopia is the current Hr 1.4 billion backlog of unpaid pensions.
The reforms long advocated by competent economists are controversial and politically difficult. They might require the current crop of workers to support today’s retirees while also putting aside money for their own old age. And they would have to keep contributing longer than they planned as the retirement age is increased. In a country where the life expectancy has declined that change is bound to rankle.
Yet today’s system is untenable, and is any case unable to deliver the benefits it promises. It’s time to acknowledge that a pension dependent on an empty treasury offers no security at all.
