Ukrainian government plans to merge its social benefits fund with its deficit-laden state pension fund could risk a reduction in – or even an end to – workplace sickness and incapacity benefits, union leaders are warning. The plan, already approved by parliament and now set to be signed into law by President Volodymyr Zelenskyi, is to merge Ukraine’s social insurance and pension funds, in an effort to deal with a serious shortfall in the social insurance fund and streamline the administration of welfare payments. If it goes ahead, it will come into effect in January 2023.
The merger plan comes as the Ukrainian government is preparing to move away from state provision and regulation in socio-economic policy. This summer, the country’s ruling party forced through an agenda of radical labour deregulation — without consulting trade unions or referring to legal advice provided by the European Union and the International Labor Organization (ILO). Those new laws, governing labour protections at small and medium enterprises, are deemed to violate E.U. norms and ILO conventions.
Mykhailo Volynets MP, head of the Confederation of Free Trade Unions, stated, “We informed them about violations of ILO conventions, the Association Agreement with the E.U., E.U. directives when the Ukrainian parliament adopted a number of bills that infringe on labour and trade union rights,”
Proponents of the merger claim Ukraine needs to cut down its financial obligations to citizens, given the destruction of the country’s economy caused by Russia’s invasion. They argue private insurers could take on the role of state welfare.
“This merger will not lead to better social protection for Ukrainians, but more likely a reduction in it,” said Nataliia Lomonosova, a social policy analyst at Ukrainian think tank Cedos. The merger “looks like part of a larger plan, and one that is designed to cut [state] spending on social protection”, explained Lomonosova.
For analyst Nataliia Lomonosova, the merger raises questions about how the state will be able to deal with payouts during Russia’s war against Ukraine.
“The number of individuals who will claim insurance payouts during wartime is only going to rise. This means the administrative burden will inevitably rise, so it’s incredible to radically reduce the number of people working for the social insurance fund in these conditions,” she said.
Lomonosova noted that the Ukrainian government is about to re-examine its obligations to Ukrainian citizens in terms of social security and welfare, on the basis that the “state should not have any unfinanced social obligations.” The World Bank has predicted Ukraine’s economy will shrink by 35 percent as a result of the Russian invasion this year.
“In practice, [the government’s plans] can only mean one thing: a reduction in [social] obligations,” Lomonosova said.
Trade unions have spoken against the merger, claiming it violates best practice in the European Union. Trade union representatives sit on the board of the social insurance fund, and are involved in its management.
Ukraine’s social insurance fund provides support payments to citizens who temporarily cannot work because of illness, maternity leave, disability, workplace accidents or other conditions arising from the workplace. It also provides medical and social services to those who pay social contributions, whether via their employer or as a self-employed person. It is financed via social security payments known as the “unified social contribution,” which are taken from individual salaries. It is managed equally by representatives of the state, employers and trade unions (representing employees).
The coronavirus pandemic, as well as Russia’s invasion, have left the fund with a huge deficit, as more than 3 million people called on state assistance during 2021, with approximately 16 billion hryvnia (£390m) issued in sick pay to Ukrainians. Last year, the fund’s deficit exceeded 2 billion hryvnia (£48m) and the shortfall had to be taken from the state budget. This has also led to delays in paying sick leave, maternity benefits and interruptions in other social benefits. So far this year, 1.75 million people have turned to the fund for assistance and made 9.6 billion hryvnia (£230m) in payments to Ukrainian citizens. But there have been significant delays: according to the fund’s own data, at the end of September, many regions were facing a three-month delay in paying benefits.
Natalia Zemlyanska, a trade union official who sits on the fund’s board, told openDemocracy the fund’s finances began to suffer some years ago, after the government reduced the percentage that people had to pay from their salaries towards social insurance. Huge Covid -19 payouts since 2020 have only exacerbated the financial problems. For Zemlyanska, the merger risks the collapse of Ukraine’s social insurance system.
Beyond the direct effects of the merger, Ukrainian trade unions are also concerned that it paves the way for the introduction of private insurance funds as a way to provide workplace sickness and accident benefits. Unlike the social insurance fund, private insurance funds do not have representatives from the state, trade unions and employers. Moreover, the former’s financial assets are public and accountable. In recent years, a number of private insurers in Ukraine have gone bankrupt, and with inflation in Ukraine currently at 30 percent, their ability to provide payouts could be limited.
Volodymyr Saenko, deputy head of the Federation of Trade Unions of Ukraine, described these efforts as “nothing more than lobbying the interests of private insurance companies.”
The government reforms have long set them on a collision course with Ukraine’s trade unions, which cannot use traditional methods of action, such as mass protests and strikes, during wartime.
Ukraine: don’t merge social insurance and pension funds, say unions | openDemocracy
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