16 February 2011, 11:52
Public and individual needs can be balanced only in a three-level pension scheme.
This statement is made in the article "Comprehensive Pension Reform Progressive Country" by Volodymyr Lytvyn, Chairman of The Verkhovna Rada of Ukraine, published in the Holos Ukrainy newspaper on February 16.
"A comprehensive pension reform should be implemented with the understanding that no country can guarantee high rates of pension to its citizens within the solidary system. It is only in a three-level pension scheme that public and individual needs can be balanced," V.Lytvyn stresses.
According to V.Lytvyn, the first level is a state compulsory social security system that guarantees payments at the rate of 20-25% of the average salary (not least than 75% of the minimum level subsistence) to every citizen who reached the retirement age. The sources of payments are the compulsory retirement fees and the payroll tax.
The second level of the national pension fund scheme is a system of compulsory personified savings. The funds shall be paid by both the employers and the employees under the conditions of substantial tax privileges. This component shall provide extra 30-40% of the individuals´ pension in the future, V.Lytvyn believes.
The third level consists of the taxpayers´ personified voluntary savings supported by the substantial tax privileges. "Together with the first and the second components, they will provide a pension totaling at least 70% of the average salary," he stresses.
V.Lytvyn supposes that obligation of the state to pay a certain rate of monthly pension to every individual should be formed not when the individuals reach the retirement age, but when they start their professional career. "Starting from the first months of the person´s work and payment of fees to the Pension Fund, a certain rate of pension rather nominal in the first months and years is already being calculated," he states. "Still, sooner of later the record of service together with the total accumulated fees, accurately counted by an efficient system of the Pension Fund, will allow allocating the earned pension at the rate exceeding the minimum level in the solidary system."
V.Lytvyn believes that it is owing to the accumulating principle of pension scheme that the problem of retirement age is not critical in the European states, "When the individuals believe that they had already saved enough money on their savings account, they can have an early retirement, realizing that their savings will not grow, but decrease due to the receipt of monthly payments."
Judging by the global practice, V.Lytvyn considers ‘corporate pension plans´ on a parity pension basis to be progressive. According to such schemes, the employees make deductions out of their salary to the individual pension accounts, receiving extra allowances from the employers to their account (at the expense of the salary fund). He believes that domestic laws should allow investing the funds of corporate pension plans into the company shares, i.e. financial assets with moving profit, to promote active involvement of the company owners in the development of non-governmental pension schemes.
"Transition to the equity participation of the employees and employers in the accumulation of an individual pension fund is a promising variant of a pension reform in Ukraine. However, its introduction is only possible on the adoption of a three-level pension scheme with compulsory savings, which requires political will and time to publicize modern models and tools of pension scheme," the Head of the Parliament summed up.