You're reading: Ukraine to cut large pensions as part of reform

Ukraine has redrafted a pension reform bill with the aim of cutting large payouts already assigned to a number of pensioners, Deputy Prime Minister Sergei Tigipko said on Wednesday.

The aim of the move is to share the pain of pension reform more equitably and defuse public discontent that some better-off current pensioners are being treated too generously compared to others.

The move could help the former Soviet republic’s government to win parliamentary approval for the law, unlocking access to a frozen $15 billion International Monetary Fund facility and starting a long overdue reform of the crumbling pension system.

President Viktor Yanukovich’s government had promised the IMF to pass the law by the end of last year but missed the deadline after public criticism of the proposed reform which would raise the retirement age for women by five years to 65.

As a result, the Fund suspended the disbursement of loan tranches to Ukraine which counts on them to help to offset a current account deficit.

Tigipko said cutting the highest pensions — mostly awarded to retired government officials — would "restore social justice", making the unpopular reform more acceptable to the wider population.

The previous version of the bill only capped future pensions without affecting the current ones.

"People were saying at every meeting it was unfair that 3,500 pensioners were paid 10,000 hryvnias ($1,250) a month when the average pension was 1,176 hryvnias ($147)," Tigipko told reporters.

He said Ukraine could secure the renewal of IMF funding by August if the parliament passed the reform bill before the summer break which starts in early July.

There are nine pensioners per 10 pension fund contributors in Ukraine and that ratio is set to worsen as the population ages, making the pension system a heavy burden on the budget.

Separately, Yanukovich on Wednesday sacked Deputy Prime Minister Viktor Tikhonov who was responsible for utilities. Raising energy prices for households is another step agreed under Ukraine’s IMF programme that the government has so far been hesitant to implement.