Another restart of pension reform in 2025: what awaits Ukrainian pensioners

The pension system in Ukraine has remained one of the most pressing socio-economic problems for many years. The need to reform it is caused by both financial difficulties and demographic challenges. However, the latest attempts to change the pension system raise many questions and concerns. On July 1, 2025, the next pension reform will start in Ukraine, aimed at introducing a funded system. In this article we will look at the main aspects of the reform, its impact on pensioners, as well as expert opinions on the future of the pension system.

Prerequisites for introducing pension reform

The introduction of a new pension reform in Ukraine has several important prerequisites that arose due to the difficult demographic, economic and social situation in the country:

Population decline. In recent years, Ukraine has seen a stable trend towards a reduction in the birth rate. Since 2013, this figure has fallen by about 7% annually. The situation became especially critical after a full-scale war that began in 2022. At the end of 2023, the birth rate decreased by a third compared to the pre-war level. Last year's figure was only 187 thousand newborns - this is the smallest result in the entire history of independent Ukraine. In this regard, the nation is aging, which puts significant pressure on the pension system.

Decrease in the working-age population. As the population declines, the number of able-bodied people automatically decreases. According to the Ministry of Economy of Ukraine, in 2021 the labor market covered 11.5 million people. At the beginning of 2024, there were 10.8 million registered working citizens in Ukraine who paid contributions to the joint pension system, and 10.5 million pensioners who received payments from this system. This 1 to 1 ratio created serious financial problems for the pension system. In addition, many Ukrainians are forced to retire early due to health conditions, especially veterans and military personnel who were injured during the war. This affects the amount of social contributions received by the pension fund, since each person who drops out of the labor market reduces the financial base of the solidarity system.

Reduced income and loss of jobs due to war. The war also had a negative impact on household incomes. Many Ukrainians have lost their jobs, which in turn has reduced their insurance coverage and income from which pensions are calculated. The traditional solidarity system can no longer cope with the load, since more than five million Ukrainian pensioners receive pensions below 4 thousand hryvnia per month. To ensure even these low payments, the available contributions are not enough, so the state is forced to use other sources of revenue, including taxes.

Large social expenses and budget. Ukraine's social budget is the second largest after the defense budget. According to the Minister of Social Policy Oksana Zholnovich, the social sphere needs to be optimized, because the number of people who are on the verge of poverty or need special support is growing - pensioners, people with disabilities, veterans, etc. In addition, the growth of spending on social programs is limited by the capabilities of the state budget. In such a situation, the government is forced to look for alternative ways to support pensioners and at the same time optimize the system of social spending.

Main provisions of the reform

One of the key elements of the 2025 pension reform is the transition to a funded pension system. According to government plans, from July 2025, citizens of Ukraine will be able to make mandatory contributions to their individual pension accounts. This system assumes that the accumulated funds will be used to pay pensions after decades. According to forecasts, the effectiveness of this system will become noticeable only in 20-30 years, which makes it a promising but long-term solution.

Oksana Zholnovich at the Global Digital Social Forum (GLOBAL DIGITAL SOCIAL FORUM 2024) noted that the new funded system should provide citizens upon retirement with guaranteed coverage in the amount of 40% of wages for the full insurance period. This figure is almost twice the current level. The state also undertakes to ensure transparency of the mechanism for accounting for pensions, based on the number of years of insurance experience and the amount of contributions paid during employment.

New pension accounting mechanisms

In addition to the introduction of a funded system, the pension reform also provides for the introduction of a point system for calculating pensions. As Prime Minister Denis Shmigal explained, each citizen will receive points to his account depending on his salary level. For example, if a person receives a salary at the level of the national average, he will receive 10 points. Those earning higher salaries may receive more points. Each year, these points will be converted into pension payments in accordance with the current average salary in the country.

Social services web portal and program has potential

In addition to the pension reform, the Ministry of Social Policy also announced the launch of a new web portal for social services. The purpose of this portal is to provide citizens with access to a wide range of social services online, including care, in-kind assistance, and inclusive education services. In the future, it is planned to add more than 20 types of different social services to the portal.

Another important initiative is the Capacity program, aimed at developing social initiatives and increasing the capabilities of citizens.

Challenges standing in the way of reform

One of the biggest challenges of the new pension reform is financing. According to pension expert and journalist Sergei Korobkin, significant funds are needed to implement funded and point systems, but the draft budget for 2025 does not have clear indicators for financing these reforms. Moreover, financial difficulties and the demographic situation call into question the success of the implementation of the funded system.

The economic situation in the country can also seriously affect the success of implementing the funded pension system. In particular, issues of inflation and depreciation of the national currency can significantly reduce the real value of accumulated funds. Economists warn that if inflation exceeds projected levels, pension savings may depreciate and citizens will not receive expected pension payments.

Another challenge is the low level of citizens’ trust in financial institutions and the state as a whole. Considering the experience of past years, when pension savings and savings of citizens disappeared due to economic crises, many Ukrainians are skeptical about the new reforms. This may affect the population’s activity in joining the new funded system.

In addition, according to Sergei Korobkin, the results of introducing a funded system will only be felt after decades, and in the near future, pensioners will not feel significant improvements.

Korobkin also expressed doubts about the effectiveness of such measures as the Potential program and the new social services web portal, pointing out that the lack of specific data and a clear strategy makes these initiatives more likely to be marketing than real tools for helping citizens.

The pension reform of 2025 in Ukraine is an ambitious step towards ensuring a decent old age for citizens. However, its success will depend on many factors, including the financial stability of the state, the economic situation and citizens’ trust in the new mechanisms. Although the government promises significant improvements in the long term, Ukrainian pensioners should prepare for new challenges and adaptation to changes in the pension system in the coming years.