The influence of populism on the budget balance of the Pension Fund of Ukraine

Abstract

The experience of states with limited democracy shows that populist manipulations often result in a collapse of the pension insurance system, and then – in an escalation of economic, political and social instability. Accordingly, the development of tools for identifying and preventing economic populism manifestations does not become irrelevant.Through analyzing the changes in pension legislation, as well as studying economic indicators’ dynamics, the article shows that pension insurance issues are widely used as tools for populist policy in Ukraine. This ultimately results in the formation of an abnormally low financial stability of the pension system. In particular, during the 2004 presidential election campaign and parliamentary election in 2007, there was a sharp short-term increase in the gap between growth rates of average pension and nominal GDP; significant deviation of replacement rate from its long-term average trajectory; and with some temporary lag, there emerged a substantial increase in transfers from the state budget.It is noted that the main tools for economic populism in Ukraine are: (1) permanent procrastination of retirement age raising; (2) “manual” pensions indexation; (3) the existence of a VIP pensions and early retirement system for certain population categories; (4) transfer of burden to lower-income social contribution payers as a result of limiting the maximum value of unified social tax base.The paper suggests a number of measures, the implementation of which could reduce the negative impact of populist decisions on budget balance of the Pension Fund of Ukraine