Pension reform options for Russia and Ukraine: a critical analysis of available options and their expected outcomes with a focus on labour market

This paper analyses key problems related to pension systems and their reforms in Russia and Ukraine, comparing the two cases with OECD countries in general case as well as selected countries. The document reviews 22 options proposed /implemented/to be implemented in Russia and Ukraine in the context of reforming pension system, elaborating possible effects on labour market and restructuring. The paper examines the option that pensioners can work without limitations, anticipating that labour supply of aged people would increase in the short run, and sectors not receiving enough young employees would be helped to survive. Yet, it figures that the effect on restructuring can not be estimated.

The document offers the following findings: 

• in both countries, there are specific problems related to historical developments, such as large scale heavy industry
• during the last two years, pension benefits were radically increased in Russia at the expense of the financial sustainability of the system, which is similar to Ukrainian erroneous populist policies in this area
• employment in Russian services’ sectors had the most significant positive effect on both the probability to keep a job while on pension and the duration of employment while being a pensioner; the contrary was registered in terms of agriculture
• the social programs in Ukraine are poorly targeted, and provide large amounts of benefits to people who could stay out of poverty without benefits 
• given macroeconomic and population trends, the pension program inherited by Ukraine from USSR could not be sustainable in the long run

Building on its empirical results, the paper concludes that the combination of delayed economic transition and population ageing is very risky, and can make a country highly vulnerable to adverse economic or social shocks such as the current economic crisis.