Oleksandra Betliy on What Determines Pension Benefits for “Ukrainian Radio”

Where does the money for pensions come from? How many working people are needed to support one pensioner? These were the questions that “Ukrainian Radio” posed to Oleksandra Betliy, a leading expert at the Institute for Economic Research and Policy Consulting (IER).

“The main source of revenue for the Pension Fund is the unified social contribution (USC). This is a mandatory social insurance contribution paid on behalf of every insured employee. Employers contribute 22% of an employee’s salary, with the largest share of these funds allocated to pension insurance. This is the primary source of financing for Ukraine’s pension system.

The second source of funding is transfers from the state budget to the Pension Fund. These funds are used to finance pension payments, various supplements and allowances, special pensions, and, where necessary, to cover any funding gap in the Pension Fund. Although the Fund is not currently running a deficit, budget transfers remain substantial because they finance these additional payments.

This year, the Pension Fund’s budget is projected to exceed UAH 1 trillion, with nearly UAH 240 billion to be transferred from the state budget. One of the main reasons for such significant budget support is not only the financing of special pensions but also the need to top up pensions to the guaranteed minimum level.

The amount of an individual’s pension depends on two key factors: the salary on which pension contributions were paid and the length of the person’s contribution record. These factors are combined in a statutory formula. As a result, someone who has paid contributions on a higher salary over a longer period will receive a larger pension than someone who earned less or contributed for a shorter time.

The Pension Fund’s revenues depend directly on the number of formally employed people who earn wages and pay the unified social contribution. Ukraine’s pension system operates on a pay-as-you-go basis: today’s workers finance the pensions of those who have already retired.

Ukraine currently has around 10.2 million pensioners, while the number of insured contributors is fewer than 10 million. In other words, a smaller number of working people is supporting a larger number of pensioners. Moreover, some contributors under the simplified tax regime pay the unified social contribution based only on the minimum wage, which also affects the Pension Fund’s revenues.”

Listen to the full version of the interview on “Ukrainian Radio” via the link.