SPECIAL, OCCUPATIONAL, MERIT, AND PRIVILEGED PENSION REGIMES

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SPECIAL, OCCUPATIONAL, MERIT, AND PRIVILEGED
PENSION REGIMES

• ISSUES AND OPTIONS FOR UKRAINE

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3 TYPES OF SPECIAL PENSION REGIMES IN UKRAINE

• EARLY RETIREMENT FROM HAZARDOUS OCCUPATION (LIST
  1 AND LIST 2) 1,5 MIL
• NO ADDITIONAL CONTRIBUTION
• EARLY RETIREMENT PAID BY THE EMPLOYER ( GOVT
  GUARANTEE IF PRIVATE SECTOR, BANKRUPTCY?)
• REGULAR FORMULA
• EARLY RETIREMENT FROM OTHER OCCUPATION (PILOTS,
  BALLET DANCERS..) 1 MIL
• SOME PAY ADDITIONAL CONTRIBUTION (7)
• EARLY RETIREMENT PAID BY THE BUDGET
• REGULAR FORMULA
• PENSION SUPPLEMENT/TOP UP (MILITARY, CIVIL SER.,
  MERIT, NON-CONTRIBUTORY) 3 MIL
• SOME PAY SUPPLEMENTARY CONTRIBUTION (3)
• PRIVILEGED FORMULA LAST WAGE RULE (BONUSES AND
  PRE-RETIREMENT PROMOTION?), WAGE INDEXATION
• FISCALLY UNSUSTAINABLE
• TOTAL UNDER SPECIAL REGIMES 5,5 MILLION

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Accrual rates and maximum replacement rates for
civil servants versus replacement rate for
national-scheme, full-career worker
Ukraine
..... 80
54
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Indexation procedures for pensions in payment,
civil-service schemes
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Expenditure on civil-service pensions, OECD
countries ( of government revenues)
UKRAINE (2008) 3.3 - CIVIL SERVICETEACHERSDOCT
ORSMERIT
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Expenditure on pensions for public-sector
employees, high-income, OECD countries(per cent
of GDP)
UKRAINE (2008) 2.5 - CIVIL SERVICEMILITARYTEAC
HERSDOCTORSMERIT
UKRAINE (2008) 4.2 - PUBLIC SECTOR ALL PENSION
TOP-UPS
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ISSUES IN SPECIAL PENSIONS

• ARE THEY NEEDED?
• NO WAGE SHOULD INCLUDE ALL THE RISKS ONE CAN
  TAKE ANOTHER JOB AFTER HAZARDOUS ONE,...
• YES LABOR MARKETS ARE IMPERFECT, IN SOME
  OCCUPATIONS LIFE-SERVICE MAY BE DESIRED
  (MILITARY, POLICE, CIVIL SERVICE,..)
• WHAT KIND OF SPECIAL TREATMENT?
• EARLY RETIREMENT
• PENSION TOP-UPS BUT INTEGRATED
• COMPLETELY SEPARATE SYSTEMS

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ISSUES IN SPECIAL PENSIONS - 2
HAS TO FINANCE

• HOW IS IT FINANCED, WHO FINANCES IT, IS IS
  EQUITABLE?

EARLY RETIREMENT
NORMAL RETIREMENT
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FINANCING

• IN DEFINED BENEFIT SYSTEM
• SUPPLEMENTARY CONTRIBUTION TO COVER EARLY
  RETIREMENT OR HIGHER PENSION
• TOP UP AT RETIREMENT STAGE (NO CONTRIBUTION, FULL
  SOLIDARITY)
• ISSUES BENEFIT LEVEL KNOWN, FINANCIALLY
  UNSUSTAINABLE (PARAMETERS), POLITICAL INFLUENCES
• IN DEFINED CONTRIBUTION SYSTEM
• CONTRIBUTION TO INDIVIDUAL ACCOUNT
• ISSUES UNKNOWN BENEFIT LEVEL, BUT FINANCIALLY
  SUSTAINABLE, POLITICALLY MORE RESISTANT

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LABOR MARKET IMPACTS

• IN DEFINED BENEFIT SYSTEM
• VESTING PERIODS
• WAITING PERIODS
• LOCK-IN OF LABOR
• COST OF EXIT
• LIFETIME-CAREERS
• LOW LABOR MOBILITY
• IN DEFINED CONTRIBUTION SYSTEM
• LABOR FLEXIBILITY

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DESIRED PATTERNIS THERE BEST PRACTICE?

• IN DEFINED BENEFIT SYSTEM
• SHORT VESTING PERIODS
• SUFFICIENT SUPPLEMENTARY CONTRIBUTION
• MINIMIZE TOP-UPS
• INTEGRATED IN NATIONAL SCHEME
• SUSTAINABLE PARAMETERS
• IN DEFINED CONTRIBUTION SYSTEM
• ENOUGH CONTRIBUTION DURING WORK IN SPECIAL
  OCCUPATION TO FINANCE EARLY RETIREMENT OR LARGER
  PENSION

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OPTIONS FOR UKRAINE

• CLEAN UP THE CURRENT (DB) SYSTEM
• REDUCE PENSION PRIVILEGES FOR NEW RETIREES
• REDUCE ELIGIBILITY LIST
• REDUCE GENEROUS FORMULAS IN MILITARY AND CIVIL
  SERVICE
• INTRODUCE ACTUARIALLY FAIR SUPPLEMENTARY
  CONTRIBUTIONS DURING THE ACTIVE SERVICE
• REPLACE IT WITH DC OCCUPATIONAL SYSTEM WITH
  INDIVIDUAL ACCOUNTS (DRAFT LAW)
• OCCUPATIONAL SYSTEM BASED ON DC FULLY FUNDED
  BASIS, CONTRIBUTIONS DURING ACTIVE SERVICE
• PENSION SUPERVISION, REGULATION AND
  INFRASTRUCTURE HAS TO BE ESTABLISHED