Civil Servant Pension: Which Payments Must Be Included in the Calculation?

At some point in every working person’s life, the question of retirement and pension entitlement arises. However, one of the first difficulties a future pensioner may encounter is determining the correct amount of the pension. Depending on the applicable pension legislation, the calculation may take into account not only basic salary but also certain bonuses, allowances and other payments. In practice, disputes may arise where the Pension Fund of Ukraine excludes particular components of remuneration, resulting in a lower pension.

Ukrainian legislation has also historically established special pension rules for certain categories of persons, including civil servants.

Where a pensioner believes that certain payments have been unlawfully excluded from the calculation of a civil servant pension, they may apply to the Pension Fund for recalculation. If the Pension Fund refuses, its decision may be challenged before an administrative court.

An important example of the Supreme Court’s approach to this issue can be found in its judgment of 22 April 2021 in Case No. 522/23564/16-а.

In this case, the claimant brought proceedings against the Pension Fund seeking recalculation of a civil servant pension that had been granted at 82% of the relevant salary. The claimant requested that the calculation include all payments on which contributions to compulsory state social insurance or compulsory state pension insurance had been assessed and paid. In particular, the claim concerned financial assistance, salary indexation and financial assistance equivalent to 10 monthly salaries.

The courts of first instance and appeal upheld the claim and ordered the pension to be recalculated taking the relevant payments into account.

The Pension Fund disagreed with those judgments and lodged a cassation appeal, arguing that the lower courts had incorrectly applied substantive law. In particular, it maintained that the legislation on compulsory state pension insurance did not provide for the requested recalculation of civil servant pensions.

After examining the arguments raised in the cassation appeal and reviewing the application of substantive and procedural law by the lower courts, the Supreme Court reached several important conclusions.

First, the Court analysed Article 66 of the Law of Ukraine “On Pension Provision” and Article 41 of the Law of Ukraine “On Compulsory State Pension Insurance”. It concluded that payments received by an insured person on which insurance contributions or compulsory state pension insurance contributions had actually been assessed and paid may be included in the earnings taken into account when calculating a civil servant’s pension.

Second, the Supreme Court considered the legislation that was applicable when the claimant acquired the right to a civil servant pension. Under the relevant provisions of the Law of Ukraine “On Civil Service”, the claimant was entitled to have certain additional payments included in the earnings used to determine the amount of the pension.

Accordingly, when recalculating the claimant’s pension, the Pension Fund was required to take into account the amounts of financial assistance, salary indexation and financial assistance equivalent to 10 monthly salaries, while preserving the percentage applicable to the pension granted to the claimant.

What about compensation for unused annual leave?

The Supreme Court reached a different conclusion regarding monetary compensation for unused annual leave. The Court explained that such compensation does not form part of the remuneration system for civil servants and has a different legal purpose. It is compensatory in nature and therefore should not be included in the earnings used to calculate the pension.

Thus, the Supreme Court concluded that, in the circumstances of this case, the calculation of the civil servant’s pension had to include financial assistance, salary indexation and the relevant financial assistance equivalent to 10 monthly salaries. At the same time, compensation for unused annual leave was not subject to inclusion in the pension calculation.

This legal position is important for former civil servants whose pensions were granted under the legislation previously in force and whose pension calculations did not include certain payments on which the relevant compulsory insurance contributions had been assessed and paid.