Can an Employer’s Failure to Pay Social Contributions Affect Your Pension in Ukraine?
Effective protection of citizens’ rights, particularly in the field of social security, is one of the foundations of the rule of law. However, public authorities, including the Pension Fund of Ukraine, do not always adhere to this principle. In practice, there are many cases in which the Pension Fund unlawfully refuses to grant a pension on formal grounds. As a result, individuals are often forced to go to court to protect their pension rights.
A similar situation occurred in the case of Ms Ostrenko, who applied to the Pension Fund for an old-age pension. In response to her application, the Pension Fund stated that her insurance record amounted to 27 years, 7 months and 21 days, whereas the law required 30 years. However, a number of periods of her employment had not been included in her insurance record because her employer had failed to pay the Unified Social Contribution (USC). As a result, the Pension Fund refused to grant her a pension, which led to the filing of a court claim.
Having analysed the Pension Fund’s refusal and the client’s documents, we decided to challenge the decision in court. Our legal position was based on the following arguments.
Under Article 24 of the Law of Ukraine “On Compulsory State Pension Insurance”, the obligation to pay insurance contributions rests with the policyholder – the employer. An employer’s failure to pay the Unified Social Contribution cannot deprive an employee of the right to have the relevant period of employment included in their insurance record. A similar legal position has been established in the case law of the Supreme Court of Ukraine, including in cases No. 242/65/17 and No. 242/4793/16-а.
In particular, in its judgment of 2 August 2022 in case No. 560/4616/20, the Supreme Court considered similar legal circumstances and addressed the questions of who is responsible for calculating and paying insurance contributions and whether an insured person can be held responsible for the employer’s failure to calculate and pay such contributions. The Supreme Court concluded that since the obligation to calculate and pay insurance contributions rests with the policyholder (employer), responsibility for failure to calculate those contributions also rests with the employer. Consequently, an employee cannot be held responsible for the employer’s improper performance of its statutory obligations. Therefore, the employer’s failure to calculate or pay insurance contributions for the employee during the disputed periods cannot constitute grounds for disregarding the relevant salary and employment periods when determining the insured person’s pension entitlement.
Therefore, where periods of employment are confirmed by entries in an employment record book, they should be taken into account when determining the person’s insurance record regardless of the employer’s failure to pay the relevant contributions. Refusing a pension because of the actions or omissions of third parties is inconsistent with the principles governing the protection of citizens’ social rights.
After considering the case, the court of first instance fully supported our legal position and confirmed that the Pension Fund had unlawfully failed to include Ms Ostrenko’s disputed periods of employment in her insurance record. Accordingly, the court ordered the pension authority to include those periods in her insurance record but did not order it to grant the pension. We therefore appealed the judgment. Following consideration of our appeal, the appellate court ordered the pension authority to reconsider Ms Ostrenko’s application for a pension, taking into account the conclusions established by the court.
The Pension Fund subsequently complied with the court judgment in full: it granted Ms Ostrenko an old-age pension and paid the pension arrears accumulated during the court proceedings.
The court judgments are available at the following links:
