Funded pension from 2026: how will it work?

Ukraine is planning to introduce a funded pension system next year. Find out what this means for citizens, how the new system will work, and who will be able to use the savings

Legal advice for Ukrainians

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Ukraine is preparing for a large-scale pension reform that will introduce a funded pension system starting January 1, 2026. This will be a major change for the country's entire pension system and will affect millions of Ukrainians.

Let's take a closer look at the innovations proposed by the government, how they will work, and what the possible risks are.

What is a funded pension?

Today, Ukraine has a solidarity pension system. This means that working citizens pay taxes that go to the general budget. These funds are used to make payments to current pensioners.

The funded system works differently: part of the pension tax will go to the general budget, and part will go to a citizen's personal account. These funds will be accumulated over the course of a person's life, multiplied by investments, and paid to them upon retirement.

The main advantage is the possibility of inheriting savings. If a person dies before retirement or only partially uses their savings, the balance can be transferred to their heirs.

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How will the pension system change in 2026?

The draft law developed by the Ministry of Social Policy envisages the introduction of a mandatory funded level in the pension system. Previously, similar reforms were repeatedly postponed due to financial difficulties and resistance from international partners.

This time, however, the reform has received support, including from World Bank experts. At the same time, many analysts doubt that the changes will be implemented in 2026, as even after the law is passed, a number of additional regulations will need to be adopted.

If the system does work, Ukrainians will face the following changes:

1. Personal retirement accounts: each working citizen will be given a personal savings account.

2. Financing: monthly contributions to the savings accounts will be paid by employers and the state.

Investment of funds: money from the accumulation fund will be invested to protect it from inflation and increase it.

3. Citizen's ownership: the accumulated funds do not “disappear” after a person's death, they can be inherited.

4. Payment formats: Ukrainians will be able to choose between a lifetime pension or a pension for a certain period of time.

How will it be possible to receive the accumulated funds?

There are two payment options:

A lifetime pension - money will be paid for the rest of your life. If the pensioner dies earlier, the right to inherit the funds is retained only for the first 10 years.

Pension for a certain period oftime - a person chooses the period of payments. However, if the pensioner outlives the specified period, payments will stop.

The accumulated funds can be withdrawn only after the age of 60, provided that the person has 35 years of work experience.

Who will be able to use the funded pension?

According to economist Oleh Pendzin, the system will not be effective for those who are 45 years old or older. The reason is that they simply do not have enough time to accumulate a significant amount before retirement.

Instead, younger generations can count on more stable payments in the future. According to the government, the introduction of the funded system will help to increase the overall level of pensions.

What are the risks?

Experts identify several important risks:

Depreciation of savings due to inflation

In Ukraine, the inflation rate can significantly affect the accumulated funds. For example, in 2022, inflation reached 27%, while government bonds yielded only 16% per annum. This means that savings can lose their real value.

Economic instability

War, crises, and a lack of investment can jeopardize the system's effectiveness.

Delays in implementation

Legislative initiatives in Ukraine are often delayed, so there is a possibility that the reform may be postponed to an even later date.

How will the contributions work?

The Ministry of Social Policy envisages a mandatory 9% of salary to be contributed to a funded pension.

According to government estimates, this will increase the size of future pensions:

20% of the average salary will come from the accumulation fund.

Another 20% will come from the PAYG system.

The total income replacement rate will be 40% of the average salary.

However, citizens will be able to voluntarily pay more to increase their benefits in the future.

We remind you! The National Bank of Ukraine intends to test the digital hryvnia next year. We told you how the pilot project is planned to be conducted and what is generally known about the launch of Ukrainian electronic money.

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