Ukraine will implement a new pension indexing system: what changes can we expect?

In Ukraine, a project on pension reform has been introduced by the Ministry of Social Policy, which suggests a change in the annual pension indexation principle. The document has been published by the Federation of Trade Unions. Indexation will continue to take place once a year in March, but instead of the current method that accounts for 50% inflation and 50% wage growth, a new calculation formula is set to be implemented. As stated in an article from "OBOZ.UA".

The new system aims to prevent the "devaluation" of pensions. In March 2025, the indexation will remain, but by July, all pensions may be recalculated according to the new formula. The exact amount of the increase is not yet specified. If the reform is approved, starting in 2026, the March indexation will be replaced by the recalculation of pensions based on the updated principle. This will equalize the payment amounts for new retirees and those who retired earlier.

The new pension calculation formula will be based on the minimum and average salaries and will include two components: a basic and an insurance part. The basic part will constitute 30% of the minimum wage after tax deductions. The insurance part will be calculated in points, which depend on work experience and salary level. For instance, for each month worked at the average salary, one can earn 10 points. Thus, with 35 years of experience at the average salary, one can accumulate 4200 points.

Article 19 of the draft law outlines the "procedure for calculating the sum of points." Currently, instead of points, the formula uses coefficients for work experience and salary assessment. Now, all work experience and salary will be converted into points. To do this, the contributions paid from your salary will be divided by the contributions you should have paid based on the average salary and multiplied by 10. For example, if the contribution based on the average salary for a month is 4,000 UAH, exactly that amount is paid by your employer, you receive 10 points. If your salary was twice the average – you get 20 points, and if it was half – you receive 5 points.

Consequently, the "average" Ukrainian who has worked for 35 years and received an average salary from the first to the last day of their career can earn 4200 points (10 points per month, 120 points per year, and 4200 points over 35 years). There is a certain risk here: the average salary will be determined by the Pension Fund. Currently, the PFU uses the average salary on which contributions have been paid, but under the new rules, "the procedure is established by the PFU in coordination with the Ministry of Social Policy." According to the latest data from the PFU (as of September 2024), the average salary is 18,020 UAH.

We remind you that the Pension Fund has stated that some citizens may receive a special supplement to pensions in 2025. This particularly applies to Ukrainians who have health issues and require assistance.

Earlier, the PFU noted that pensioners could receive an advance payment of six pensions. This may occur if a Ukrainian moves abroad for permanent residence.