FOLLOW US ON SOCIAL

Posted On

26
November
2021

IMF doubts advisability of investing second pillar of pension system in govt bonds

KYIV. Nov 26 (Interfax-Ukraine) – The International Monetary Fund (IMF) in a memorandum with Ukraine expressed doubts about the advisability of investing the future second pillar of the pension system in government domestic loan bonds, according to the text of the document published on the Fund’s website.

“The authorities are considering the introduction of a funded second pillar. While average pensions in Ukraine are low, a funded second pillar is unlikely to improve their adequacy, especially if the contributions will be invested in government bonds,” the memorandum said.

In September, Finance Minister Serhiy Marchenko said that the mandatory funded level of the pension system in the first year of launch would accumulate about UAH 53-56 billion, which could be invested exclusively in hryvnia bonds in the absence of alternative instruments with a sufficient level of risklessness.

“Most importantly, a funded second pillar should be introduced only when appropriate preconditions are in place; it could be financed by new resources but in any case, should not lead to a reduction in the resources devoted to the first pillar,” the IMF said.

In turn, Ukraine has made commitments to continue the pension reform, which began in 2017. At the same time, the country intends to refrain from new special pensions and privileges, further discretionary benefit increases, and adopting changes that would lead to lowering the effective retirement age.

“We will simplify and streamline the current complex system of old age pension guarantees and we will adopt amendments to the law on compulsory pension insurance which specify the date of the annual pension indexation,” Ukraine’s commitments are set out in the memorandum.

In addition, according to the memorandum, Ukraine intends to continue collaboration with its development partners to establish “well-regulated and fully funded obligatory pension saving schemes.”

Ukraine also indicated in the memorandum that it will identify appropriate funding resources for the second pillar, and ensure that resources reallocated from the first to the second pillar will be replaced by other revenue sources.