How to Calculate Your Pension in Ukraine: Salary and Insurance Record
Many future and current pensioners have probably wondered what factors determine the amount of their pension. Why does one person receive, for example, UAH 3,000 while another receives UAH 10,000–13,000? These figures are certainly not arbitrary. Ukraine operates a solidarity-based pension system in which two key factors influence the amount of a person’s future pension: the insurance record accumulated throughout their working life and the salary on which insurance contributions were paid.
It is important to understand that the amount of official salary from which the Unified Social Contribution is paid directly affects the amount of your future pension. Therefore, before agreeing to receive an unofficial “cash-in-hand” salary, you should bear in mind that this may significantly reduce your future pension entitlement.
Under Ukrainian legislation, when calculating the amount of a pension, the person’s salary for the entire period of insurance record starting from 1 July 2000 is taken into account. In addition, subject to the requirements established by law, information about salary for any 60 consecutive calendar months of insurance record before 1 July 2000 may also be submitted for pension calculation purposes, which may affect the final amount of the pension.
Let us now consider the mechanism used to calculate a pension. In practice, two main components must be taken into account – salary and insurance record.
First, let us consider the salary component. The formula is as follows:
ZP = Zs x (Sk : K),
where:
ZP – the salary used to calculate the person’s pension;
Zs – the average salary in Ukraine used for pension calculation purposes;
Sk – the sum of the individual salary coefficients for each relevant month;
K – the number of months of insurance record taken into account for determining the salary coefficient.
A period is generally included in the insurance record if the employer or the insured person paid the required Unified Social Contribution.
First, the individual monthly salary coefficient must be determined. It is calculated by dividing the person’s actual salary for a particular month by the average salary in Ukraine for the same month.
For example, suppose a person received UAH 10,200 in a particular month, while the average salary in Ukraine used for comparison for that month was UAH 13,387. We divide 10,200 by 13,387 and obtain a coefficient of approximately 0.7619. The same calculation must be performed for all other relevant months and periods. The resulting monthly coefficients are then added together. This total represents the Sk indicator in the formula.
Now let us demonstrate how to calculate the part of the formula shown in brackets. Suppose that Sk for the entire relevant period amounts to 251.56015. This figure must be divided by the number of months taken into account. In our example, this is 210 months. Therefore, 251.56015 / 210 = 1.19790. The result is the person’s individual salary coefficient. The salary used for pension calculation purposes is then determined by multiplying Zs by the resulting individual salary coefficient.
Once the salary figure used to calculate a particular person’s pension has been determined, we can proceed to the pension calculation formula:
P = ZP x Ks,
where:
P – the amount of the pension;
ZP – the salary used to calculate the pension. This figure is determined using the formula described above;
Ks – the insurance record coefficient.
The remaining figure to be determined is Ks. It can be calculated using the following formula:
Ks = Sm x Vs / (100% x 12),
where:
Sm – the total number of months of insurance record;
Vs – the percentage assigned to one year of insurance record under the rules applicable to the relevant pension calculation.
Thus, after determining the applicable value of Vs, the insurance record coefficient can be calculated using the formula above.
In conclusion, using the relevant salary information and insurance record, it is possible to calculate both the individual salary coefficient and the insurance record coefficient that affect the amount of a pension. If you believe that your pension has been calculated incorrectly, it is advisable to have the calculation reviewed by pension law specialists who can determine whether all periods of insurance record and salary information have been properly taken into account.
