Pension Clash Looms as Ukraine Opposes IMF on Retirement Age

  • Minister says demand to lift pension age lacks economic logic
  • Social Ministry has alternative to erase pension gap by 2024

Ukraine signaled a showdown is coming with the International Monetary Fund over a pension revamp that’s needed to maintain disbursements from the country’s $17.5 billion bailout.

The Washington-based lender is demanding that Ukraine raises the retirement age by 2027, to 63 from 60, to alleviate losses at the state pension fund, Social Minister Andriy Reva said in an interview. The government wants the thresholds to remain unchanged, instead seeking to widen the pool of contributors to eliminate the deficit -- 145 billion hryvnia ($5.4 billion) last year -- by 2024, he said.

“Today we have two absolutely different points of view,” Reva said Thursday in his office in Kiev, the capital. “I told them their stance was political and that there’s no economic logic behind it.”

Reva’s comments suggest there are more serious obstacles holding up the next tranche of Ukraine’s IMF rescue than officials including President Petro Poroshenko have disclosed. Loan transfers have frequently been delayed as the government held up reforms, particularly those targeting corruption. The cash is important to maintaining recovery from a recession and replenishing central bank reserves as tensions in the eastern European nation’s conflict with Russian-backed insurgents boil over once again.

Gross domestic product advanced about 2 percent last year, the Economy Ministry said Friday. That’s more than analysts had predicted, and follows a contraction of more than 16 percent during the previous two years.

To improve the Pension Fund’s finances, the government must increase the number of people paying the unified social tax from about 10.5 million of Ukraine’s 16 million taxpayers at present, according to Reva. Raising the minimum wage further, contrary to IMF advice to keep it frozen for three year, would also help balance the pension fund, he said.

“We have to tell everyone clearly that one has to sing for his supper,” Reva said. “One should reach a retirement age of 60 and with an employment period of 30-35 years. If you don’t have that, we won’t pay you.”

Ukraine has said the next slice of IMF aid, already delayed from November, may be about $1 billion. Talks between the government and the lender are continuing, according to Reva. His ministry’s proposal is backed by the World Bank and, so far, by Prime Minister Volodymyr Hroisman, whose government must decide one way or the other this month, he said.

“It will be very difficult to push the pension law through the parliament,” said Reva, an ally of Hroisman dating back to the premier’s stint as mayor of Vinnytsya. “But I’m ready to explain to the people, to lawmakers -- I can convince them. What I don’t understand is why we should raise the retirement age.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE