REUTERS
As other countries' experience shows, the financial sector was the only one to have benefited from the reform.
National Coordinator at the International Labor Organization (ILO) in Ukraine, Serhiy Savchuk, says the compulsory accumulation of pensions, i.e. the second level of the pension system, or as it is also called "privatization of pensions", has several drawbacks.
As other countries' experience shows, the financial sector was the only one to have benefited from the reform, he told the Ukrainian TV Channel 24.
Savchuk says the introduction of the second level of the pension system began in some countries of Latin America in the 1980s. Chile was a pioneer. Peru, Argentina, Colombia and others joined in later. Another 14 countries of Central and Eastern Europe, as well as Central Asia, joined the implementation of the second level after the collapse of the USSR. As of 2018, 18 out of these 30 countries canceled the pension system privatization.
"Neither the then nor the future pensioners saw declared benefits from the introduction of the second level. All financial risks were shifted from the government onto individuals," Savchuk said.
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The expert cites consequences of full or partial privatization of pensions: the level of coverage has not increased, that is, it either remained the same or decreased, while the amount of pension payments dropped. Both gender inequality and income inequality expanded; the costs were significant of transferring control to private funds in the secondary system. Also, insured persons who wanted to move from one private fund to another were forced to incur exorbitant costs. Moreover, the high administrative expenses of the very pension funds are incomparably higher than those of the state pension fund. Also, there was a loss of government leverage. The transfer of regulatory and supervisory functions has been transferred to private pension funds.
According to the expert, there is no reason to expect that the introduction of the second level in Ukraine will bring another, better result based on the analyzed data from these countries. On the other hand, all the negative consequences seen in the said countries could become a reality for Ukraine.
Savchuk cites countries that have privatized pension systems in Latin America are: Chile, Peru, Argentina, Colombia, Uruguay, Bolivia, Mexico and Venezuela, El, Nicaragua, Costa Rica and Ecuador, Dominican Republic, Panama; in Eastern Europe and the former USSR: Hungary, Kazakhstan, Croatia, Poland, Latvia, Bulgaria, Estonia, Russia, Lithuania, Romania, Slovakia, Macedonia, Czech Republic, Armenia; in Africa: Nigeria and Ghana.