Ukraine is spending increasingly more on pensions without creating capital for future generations. In 2021, Pension Fund expenditure amounted to UAH 520.9 billion, or around 35% of total general government spending. By 2025, it had risen by more than 80% to UAH 939.5 billion. The pay-as-you-go system can no longer sustain itself solely through workers’ contributions, leaving taxpayers to cover the shortfall.
In an article for Ekonomichna Pravda, CASE Ukraine economist Svitlana Dovhalenko explains how state-owned assets could help finance the transition to a funded pension system. Population ageing, migration and declining formal employment are exacerbating the problem. According to one World Bank scenario, without reform, only 40% of older Ukrainians will qualify for an insurance-based pension by 2050, while the rest will depend on social assistance.
A funded system could make pensions less dependent on demographic trends, but its introduction would create a transition deficit. If five percentage points of the current 22% Unified Social Contribution were redirected to individual accounts, the Pension Fund would have fewer resources to pay current retirees. The state would therefore have to finance the old system while simultaneously building the new one.
One possible solution is a dedicated transition fund financed by revenue from state-owned enterprises and banks, returns on state and municipal assets, and privatisation proceeds. However, privatisation provides only one-off revenue. Dividends from profitable state assets could offer a more sustainable source. In 2025, Ukrainian banks earned UAH 126.8 billion in profits, with state-owned banks accounting for nearly half. The government also expected almost UAH 50 billion in dividends from state-owned companies.
These enterprises should operate under professional corporate governance standards, while hidden subsidies delivered through artificially low tariffs should be replaced with targeted support for vulnerable consumers. This would allow state assets to help finance pension reform.
The reform could deliver two benefits: fund the transition period and create a substantial pool of long-term domestic capital for bonds, equities and infrastructure projects. Achieving this will require investor protection, corporate transparency, independent supervision, risk diversification and a sufficient supply of reliable financial instruments.
The core principle is that pension contributions should not merely finance today’s payments but also build assets that support future pensions and Ukraine’s economic recovery.
❗️The publication by the Center for Social and Economic Research (CASE Ukraine) was made with the support of the Civil Society Home of ISAR Ednannia as a part of the project «Strong Civil Society of Ukraine – a driver towards reforms and democracy,» funded by Norway and Sweden. The contents of this publication are the sole responsibility of the Center for Social and Economic Research (CASE Ukraine) and can in no way be taken to reflect the views of the Government of Norway, Government of Sweden and ISAR Ednannia.