The government continues to develop the second phase of pension reform, which calls for the launch of a funded pension system. This system needs to be launched for two reasons. The first reason is the ratio of workers to retirees, which currently stands at 1:1. This situation makes it impossible to maintain the pay-as-you-go system in a sustainable manner. It is very difficult to ensure a decent level of benefits.
In 2022, every officially employed citizen of Ukraine was effectively supporting one retiree. In this case, it is necessary to either freeze pension increases or collect higher social security contributions from workers. In a normally functioning pay-as-you-go system, benefits for one person of retirement age are funded by two to three working people. And this decline in the ratio of workers to pensioners continues to accelerate.
The war has placed an additional burden on the social security system. Many workers at enterprises have been called up for military service, and a large number of people of working age have left the country. The second reason is the rapid decline in the replacement rate—that is, the percentage of current wages that future pension payments will cover. A funded pension system can resolve the problems associated with providing pension payments.