How Ukraine's Pension Indexation Formula Creates Unequal Increases

How Automatic Pension Indexation Works

According to ХВИЛЯ: Since its introduction in 2019, Ukraine's system of automatic pension indexation adjusts the calculation of pension payments but does not directly raise the pension amount itself. The key issue is that indexation applies to only one specific component within the calculation formula, resulting in different increases for different categories of pensioners. For non-working pensioners, the formula changes only the base average salary figure, while other coefficients remain fixed.

The Indexation Coefficient and Its Impact

The annual indexation coefficient is determined by a formula that combines half of the average wage growth with half of the inflation rate. For non-working pensioners, the coefficients for length of service and personal salary are locked in, with only the base average salary increasing. This base salary has risen from 3,764 UAH in 2019 to 9,992 UAH in 2026, representing a 2.65-fold increase.

For pensioners who continue to work, the coefficients for service length and salary are also subject to change. Expert Mykhailo Vulakh explains the resulting disparity:

“They are not raising your actual pension. They raise the same single figure in the pension calculation formula for everyone. This is precisely why distortions occur and everyone's increase is calculated differently.” - Mykhailo Vulakh

He further adds:

“Any formula has its weak points, and they take advantage of this. They twist it to their benefit.”

Consequently, while automatic indexation ensures some adjustment, it is not a universal solution for all retirees. This system is a common post-Soviet reform aimed at linking pensions to economic indicators, yet its implementation often leads to complex outcomes.

The mechanism of automatic pension indexation continues to spark debate among experts and retirees. Although designed to adapt payments to economic conditions, the formula fails to account for individual circumstances. This can lead to an uneven distribution of supplements, which becomes particularly noticeable during periods of economic fluctuation. Given the significant rise in the base average salary, there is a clear need to consider refining the calculation formula to ensure a fairer approach to pension adjustments for all.

In light of the current disparities in pension increases, a Ukrainian lawyer has proposed an innovative model for pension indexation that could potentially enhance payments by 16%. This new approach could address some of the shortcomings in the existing formula, which has led to unequal adjustments for various pensioner groups. To learn more about this proposed reform and its implications for retirees, read our detailed coverage on the new pension indexation model.