Second try

The state is seeking a way out of the complicated demographic situation by the trial-and-error method. Ukraine has gotten closer to introducing the second (accumulating) level of the pension system, which, together with the non-state system of pension insurance, is the cornerstone of building a new and, as they are saying in governmental circles, fair and effective pension system.

Firstly, it should be insured against the results of demographic processes connected with the aging of the population. The second is to encourage citizens not to rely only on the state, but to start saving money for their old age when they are young, like everyone does all over the world.

The introduction and improvement of corresponding mechanisms and pension systems was the topic of discussions at a recent meeting of the Coordinating Center for the Implementation of the Pension Reform. According to the intentions of Viktor Yanukovych’s first government, supplementary levels of the pension system were supposed to become an essential support for the so-called solidary pension system, which, in fact has been functioning since Soviet times in raising the living standards of the older Ukrainian generations. On the other hand, pension innovations could become a stimulus for the further development of the stock market as well as a kind of cost accumulator that allows the implementation of structural reforms in the economy.

Because of certain political events, nothing came of this. Now the government is making a second attempt. Its task consists of continuing the development of a corresponding legislative base. Today, the rate of economic development and the level of business activity in Ukraine are favorable. The head of the State Commission on the Regulation of the Financial Services Market, Valerii Alioshyn, talked to The Day about this. “If the budget process goes according to plan, by 2009 there will be grounds to initiate the introduction of an accumulating pension system.”

Actually, one of the main directions of the center’s work is to reopen the discussion of the nearly- forgotten subject of the second level of the pension system. The meeting discussed the government’s draft decree on conducting informational-explanatory work among the population, employers, and trade unions. Among the planned measures are televised discussions, TV commercials, different types of street advertising, and explanatory work that will not be conducted among the older age categories but among young people, including students and senior pupils.

It would appear that the system will not be implemented any time soon. Wrong. However, most likely only today’s schoolchildren and students will be able to count on its payouts. The thing is that the second non-state level of the pension system works according to the slogan: “A retiree’s salvation is his own business.” The earlier a person is involved in this system, the fewer financial burdens s/he will have to carry each month and the better the end result will be (or has to be): a pension supplement from the solidary system.

Unfortunately, the state is trying to implement the accumulating system of the compulsory state pension insurance through trial and error. According to the Minister of Labor and Social Policy, Mykhailo Papiev, three profile parliamentary committees have already considered corresponding draft laws and recommended that this law be passed on the first reading.

But there is probably no certainty either in parliament or the government that this law will be effective. Therefore, a sort of trial balloon is being prepared — one more draft law — on the introduction of the accumulating system. There are plans to implement it in the Sokal and Zhydachiv raions of Lviv oblast. It is not quite clear why these particular districts were chosen. I think that the government made its choice not because of its special affection for the oblast’s governor Petro Oliinyk (Our Ukraine) but rather because of its wish to build bridges with the local population, which is not sympathetic to the central government.

However, the conditions and order of introducing this experiment still have to be worked out and confirmed after the bill is passed. It is not out of the question that Ukraine’s parliamentarians will be satisfied with such an approach (a pig in a poke) and they will make the experiment more transparent from the very beginning.

For now, the new tiers of the pension system, whose creation was halted for nearly three years, exist only on paper. As Alioshyn noted, the State Commission on the Regulation of the Financial Services Market, together with other state bodies, is now improving the legislative base of the non-state pension provision, as well as taxation legislation. Meanwhile, questions related to the taxation of physical persons who receive one-time pension payments have still not been resolved.

Alioshyn explained that while the problem of allocating shares of non-state pension funds (NPF) is in the process of being solved, there are plans to discuss with the Ministry of Finances the possibility of depositing them into state securities protected from inflation. It is also important to boost the population’s trust in non-state pension funds. There are plans to conduct an evaluation of their activity and of NPF administrators and share management companies, as well as to improve the system of disclosing information about the owners of such funds.

Insurance companies will have to play a significant role in establishing the non-state pension system. Their functions, according to Alioshyn, are included in the draft law on introducing amendments to the “Law on Insurance.” However, Alioshyn is still not certain that parliament will adopt these norms.

During the meeting of the Coordinating Center for the Implementation of the Pension Reform taxation questions were also raised. While discussing various ways to resolve them, the representatives of the state tax service made references to the draft of the Tax Code, now being prepared and which states that the object of taxation is salary minus pension deductions and deductions to the compulsory state social insurance, taxed social benefits (if they exist) and calculated tax credits, which, according to the draft code, a citizen will have the right to realize during the year and receive a refund equal to the value of expenditures.

Of course, it is assumed that it will be rather complicated for the average citizen, who spends money on his children’s education, medical and social insurance, and living accommodations, to figure everything out and obtain the proper refund.

But here’s a secret: after adopting the Tax Code, the State Tax Administration of Ukraine will be obliged to provide all citizens with a free written consultation concerning their situation, which can be referred to when filing income tax returns.