In 2017 the Ukrainian government was carrying out a PAYG pension system reform. Our company studied and analyzed the government bill and the alternative members of Parliament’s drafts on the pension reform submitted to the Verkhovna Rada of Ukraine (the Parliament).
In the course of the law making we were providing consultations for the experts and MPs on different aspects of the pension reform.
In particular, we have conducted in-depth analytical research into the proposed initiatives on financing preferential pensions for workers in hazardous jobs (the so-called Lists #1, 2). Using its long-term experience in actuarial assessments of corporate preferential pension liabilities in Ukraine according to the IFRS (IAS) 19, Consoris Consulting has developed new assessment models to estimate the impact of proposed initiatives on the financial strength of the Pension Fund of Ukraine and for forecasting other possible consequences. The following steps were made to pursue the above:
- Accumulation, requesting and studying the available statistical information and forecasts of macroeconomic, social and demographic rates from different sources. Data preparation for modelling.
- Development of flexible multifactor models with various levels of input information detalization suitable for changing the parameters and application of optimistic and pessimistic scenarios.
- Analysis of model sensitivity to alteration of the main contributors and key parameters.
- Making calculations upon the developed models using all necessary actuarial principles based on compliance with the strict requirements of the international financial reporting standards.
- Results visualization for illustrative purposes, plotting flow charts of the Pension Fund’s expected payments, revenues and deficit.
The performed actuarial calculations have revealed some legislative initiatives to be not of economic benefit for the state, because, having been introduced into the PAYG pension system, they could cause some additional risks of financial fragility. The lifespan of such risks is considerable – dozens of years, and, therefore, it could cause the Pension Fund’s budget imbalance, which entails additional financing from the state budget. Also, over a long-term period the workers in the hazardous jobs might face risks of unfair eradication or reduction of their rights for preferential pensions, previously guaranteed by the state and secured in legislation.
Our actuarial calculations have been introduced to the government policy-makers, representatives of the Ministry of Social Policy, MPs, scientific and expert community and the concerned NGOs.
The resulting draft law has been adopted as amended and supplemented pursuant to the results of the performed calculations. It was recommended to further elaborate on the topic in 2018. In times to come it is possible to build new expanded forecasting models for actuarial justification of the pension reform using more detailed input information.