Can Employment Count Towards a Pension If the Employer Did Not Pay Contributions?

Life is full of unexpected events, both positive and negative. One particularly disappointing situation is discovering that your pension is significantly lower than expected or, even worse, that the Pension Fund has refused to grant a pension altogether.

One of the problems that can affect future pension rights is an employer’s failure to properly formalise employment or pay the mandatory social insurance contributions due for an employee.

Such violations may result in liability for the employer, but they can also create serious difficulties for the employee when applying for a pension. For example, the Pension Fund may refuse to count certain periods towards the person’s insurance record, which may reduce the amount of the pension or even result in a refusal to grant it.

However, an employee should not automatically lose pension rights because an employer failed to comply with its statutory obligations. In particular, where the required contributions were deducted from the employee’s salary but the employer failed to transfer them properly, the employee should not be held responsible for the employer’s misconduct.

An important legal position on this issue was considered by the Supreme Court in Case No. 165/2354/16-а.

What were the circumstances of the case?

The claimant applied to the Pension Fund of Ukraine for a pension. However, the pension authority refused the application because the claimant’s employer had failed to pay insurance contributions for a particular period of employment.

The Pension Fund also refused to recognise another part of the claimant’s employment record on the ground that the relevant period had allegedly not been certified in the manner prescribed by law.

The employee disagreed with the decision and brought proceedings seeking to have the Pension Fund’s refusal declared unlawful and to secure recognition of the relevant service for pension purposes.

The courts of first instance and appeal upheld the claimant’s arguments.

The courts concluded that the failure of insurance contributions to reach the Pension Fund, where this occurred through no fault of the employee, could not constitute sufficient grounds for excluding the relevant employment period from the claimant’s pension record.

The evidence demonstrated that insurance contributions had been deducted from the claimant’s salary each month. The employee therefore could not be held responsible for the employer’s subsequent failure to properly transfer the mandatory payments.

The courts also considered the Pension Fund’s objections concerning the documentation of another disputed period of employment.

The relevant employment information had been entered in the claimant’s employment record book by an authorised person. Any deficiencies in the employer’s preparation or certification of employment documents could not automatically be attributed to the employee.

Accordingly, the courts concluded that the Pension Fund’s refusal was unlawful in this respect as well.

The Pension Fund disagreed with these conclusions and lodged a cassation appeal, bringing the dispute before the Supreme Court.

After examining the circumstances of the case and the parties’ arguments, the Supreme Court upheld the judgments of the lower courts and dismissed the cassation appeal.

The Supreme Court’s reasoning was based on an important principle: an employee cannot be deprived of pension rights because of an employer’s failure to properly perform its statutory obligations where the employee was not responsible for that failure.

Therefore, where an employer was required to pay mandatory insurance contributions but failed to do so, the consequences of the employer’s misconduct should not automatically be transferred to the employee by excluding the relevant period from the insurance record.

What does this mean in practice?

If the Pension Fund refuses to count a period of employment because the employer failed to pay mandatory insurance contributions, it is necessary to determine whether the employee was officially employed, whether contributions were deducted from their salary, and what documents confirm the relevant period of employment.

The employment record book, payroll documents, information concerning deductions from salary and other employment records may be important evidence in such a dispute.

Where the evidence confirms that the employee actually worked during the disputed period and was not responsible for the employer’s failure to pay the required contributions, a Pension Fund decision excluding that period from the insurance record may be challenged before an administrative court.