Instituto de Estudios Políticos y Derecho Público "Dr. Humberto J. La Roche"
de la Facultad de Ciencias Jurídicas y Políticas de la Universidad del Zulia
Maracaibo, Venezuela
Esta publicación cientíca en formato digital es continuidad de la revista impresa
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Vol.41 N° 78
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Septiembre
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ISSN 0798- 1406 ~ De pó si to le gal pp 198502ZU132
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Vol. 41, Nº 78 (2023), 504-522
IEPDP-Facultad de Ciencias Jurídicas y Políticas - LUZ
Non-state social security: International
legal comparative experience
DOI: https://doi.org/10.46398/cuestpol.4178.35
Yegor Krasnov *
Vyacheslav Truba **
Anna Hudz ***
Olha Potopakhina ****
Andrii Skorobagatko *****
Abstract
Ukraine’s social security system faces signicant diculties.
The challenges of the war add to the previously existing economic
and demographic problems. The painful issue of ensuring social
standards of the population in conditions of shortage of funds
brings to the forefront ways to reduce the burden on budgets. In
this regard, non-state social security is of great importance. In
view of this, it is important to study the international experience
of the functioning of non-state social security systems. The purpose of the
work was to analyze the eectiveness of the Ukrainian system of non-state
social security in comparison with the corresponding systems of other
countries and to study international standards. The methodological basis
of this research used such methods as: historical, statistical, comparative
legal, formal legal and emergency method. In the conclusions of the case,
the peculiarities of the non-state pension system of Ukraine are explained
and the problems it faces are investigated. Several mechanisms that can
lead to an increase of its eciency and popularity among the population
are considered. It was remarked that it is necessary to introduce changes,
including through the implementation of international legal documents.
Keywords: non-state social security; non-state pension funds;
international social security; investment portfolio; non-state
organizations.
* PhD., Associate Professor, Judge of the Supreme Court, Ukraine. ORCID ID: https://orcid.org/0009-
0008-6869-0913
** Doctor of Legal Sciences, Professor, Rector of the Odesa I.I. Mechnikov National University, Ukraine.
ORCID ID: https://orcid.org/0000-0001-7782-2166
*** PhD., Associate Professor of the Department of Labor Law and Social Security Law of the National
University "Odesa Law Academy", Ukraine. ORCID ID: https://orcid.org/0000-0001-6230-4171
**** PhD., Associate Professor of the Department of Civil Law Disciplines of the Odesa I.I. Mechnikov
National University, Ukraine. ORCID ID: https://orcid.org/0009-0002-6321-7488
***** Doctor of Legal Sciences, Associate Professor, Head of the Department of General Legal Disciplines
of the National University "Odesa Maritime Academy", Ukraine. ORCID ID: https://orcid.org/0009-
0006-4757-4089
505
CUESTIONES POLÍTICAS
Vol. 41 Nº 78 (2023): 504-522
Seguridad social no estatal: Experiencia jurídica
internacional comparada
Resumen
El sistema de seguridad social de Ucrania enfrenta importantes
dicultades. Los desafíos de la guerra se suman a los problemas económicos
y demográcos previamente existentes. El doloroso tema de asegurar los
estándares sociales de la población en condiciones de escasez de fondos,
pone en primer plano las formas de reducir la carga sobre los presupuestos.
En este sentido, la seguridad social no estatal es de gran importancia. Ante
esto, es importante estudiar la experiencia internacional del funcionamiento
de los sistemas de seguridad social no estatales. El propósito del trabajo
fue analizar la efectividad del sistema ucraniano de seguridad social
no estatal, en comparación con los sistemas correspondientes de otros
países y estudiar las normas internacionales. La base metodológica de
esta investigación se sirvió de métodos, como: histórico, estadístico, legal
comparado, legal formal y el método de emergencia. En las conclusiones del
caso, se explican las peculiaridades del sistema de pensiones no estatal de
Ucrania y se investigan los problemas a los que se enfrenta. Se consideran
varios mecanismos que pueden conducir a un aumento de su ecacia y
popularidad entre la población. Se remarcó que es necesario introducir
cambios, incluso a través de la implementación de documentos legales
internacionales.
Palabras clave: seguridad social no estatal; fondos de pensiones no
estatales; seguridad social internacional; cartera de
inversiones; organizaciones no estatales.
Introduction
Stable economic development of the country is impossible without the
formation of a socially secure society. It so happened that the major source
of nancing the social protection system of the population of Ukraine was
the funds of the state and local budgets, as well as the mandatory state
social insurance funds.
However, now, in the midst of a bloody and destructive Russian
aggression in Ukraine, there is no need to talk about a stable social security
system. The war started by Russia against Ukraine has many negative
consequences both for Ukraine and for the world in general (Tkalych and
Arbelaez Encarnacion, 2022), one of which is a threat to the state social
security system. In this context, non-state social security systems, in
particular - accumulative pension funds, are of particular importance.
506 Yegor Krasnov, Vyacheslav Truba, Anna Hudz, Olha Potopakhina y Andrii Skorobagatko
Non-state social security: International legal comparative experience
The development of non-state social (pension) provisions in Ukraine
was conditioned by various factors. Increasing demographic aging of
the population leads to an imbalance of the demographic burden on the
working population.
In addition, the transition to a market economy led to the rejection of
the main principles of the solidarity pension system, namely: “working
people should provide money for those who are not working”; a decrease
in the economic activity of the working population; spread of shadow
employment and shadow incomes; the availability of a signicant part of
working benets from the payment of contributions to the Pension Fund;
low level of wages, high level of arrears for the payment of contributions to
the mandatory state pension insurance.
The specied factors led to the need for fundamental changes in
the pension system and the formation of a non-state pension system,
which constitutes the third level of the pension system. The basis for
the development of the system of non-state pension provision is the
imperfection of the system of mandatory state pension insurance and
pension provision. Even before the start of signicant reforms in Ukraine,
scholar Sydenko (1999) rightly noted that when creating a system of social
protection in Ukraine, adequate to the principles of a market economy, it
is necessary to carefully examine the world experience of the functioning
of social protection systems in the most developed countries of the world,
where they have been operating since the end of the last century.
Unfortunately, in Ukraine, unlike in other countries, the role of non-state
nancial institutions in ensuring the social protection of the population
remains insucient, and their potential in improving the well-being of
Ukrainians is underestimated.
It is worth noting that under modern conditions, social policy reform is
a critical issue for the EU as a whole and for individual EU member states.
This is connected with migration, and economic and social problems, which
have worsened recently. The above causes the need to change the priorities
of the social policy of the EU member states and to direct it not only to ensure
the social protection of citizens but also to overcome poverty, improve living
and working conditions, ensure a high level of education, etc. In connection
with the above, at the current stage of the development of Ukraine as a
legal welfare state, its social policy should be aimed at citizens’ realization
of their constitutional rights, including the right to social protection.
Given the above, it is essential to investigate the existing features of non-
state social security, including non-state pension security in the context of
international legal comparative experience.
The article examines the essence of non-state social security and some
forms of its implementation in domestic legislation, among which the
leading place is occupied by the system of non-state pension security.
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The investment portfolios of the primary non-state pension funds and
regulatory regulation of investment restrictions of certain types of assets of
non-state pension funds are analyzed in detail. The possibility of revising
some types of restrictions in the direction of lowering their share, in
particular regarding state securities and deposits in banks, was emphasized.
The international experience regarding the amount of remuneration of
non-state pension funds, which is collected from the funds of the trustees
of the fund for relevant services, is studied separately.
Prospective directions for the reform of non-state social security
institutions in Ukraine were noted.
1. Theoretical Framework or Literature Review
During the study of the international legal experience of non-state
social security, the works of the following researchers were analyzed: Bond,
Tartasyuk, Datsyuk, Dmytrenko, Tyshchenko, Melnyk, and Medvid.
A USAID report by Bond (2018) examines the relationship between
pension reform and economic growth, labor markets, and capital market
development. It highlights the main principles and considerations that
should guide the discussion of pension reform in Ukraine. The report
touches on several important issues of building a fair and balanced
pension system (replacement ratios, the number of contributions, payment
adjustment mechanisms, gender issues) and discusses the issue of nancial
sustainability of the solidarity system.
Another USAID report (2019) provides a brief overview of non-state
pension provision in Ukraine and the problems of its development,
emphasizing the importance of the main factors that determine the
indicators of the non-state pension provision system: the size and regularity
of payment of contributions, investment income, and operating expenses,
emphasizing the importance of the main prerequisites positive results of
the non-state pension system: a) political and macroeconomic stability; b)
constant support of the general reform of the pension system; c) sucient
institutional capacity for regulation and supervision; d) strong nancial
infrastructure and availability of reliable nancial instruments.
The work of Tartasyuk (2019) analyzed the number of participants, as
well as the shares of assets in the investment portfolios of the largest non-
state pension funds in Ukraine.
The structure of depositors by subject and prospects for the development
of non-state pension funds is considered in the work of Datsyuk (2019).
508 Yegor Krasnov, Vyacheslav Truba, Anna Hudz, Olha Potopakhina y Andrii Skorobagatko
Non-state social security: International legal comparative experience
The work of Dmytrenko (2022) investigated the peculiarities of the
social protection of citizens in the conditions of the European integration
of Ukraine. The components of the social protection mechanism, which
includes, in particular, nancial, legal, and organizational support, are
dened.
Tyshchenko (2015) researched the peculiarities of the legal regulation of
social security in certain countries of the European Union, and studied the
functioning of the legal mechanism of eective implementation of social
security of vulnerable population groups in foreign countries.
Melnyk (2018) examines key questions regarding the trends in the
implementation of international (European) social standards in the process
of legislative provision of social protection for persons with disabilities. The
necessity and importance of the international and European integration of
Ukraine into the international community and European community were
noted. It is emphasized that the social protection of persons with disabilities
is one of the most complex social and legal phenomena.
The main problems regarding the proper functioning of social protection
for persons with disabilities, legislative provision, and implementation of
international social standards are revealed. Key aspects of international
and European social standards are noted.
The work of Medvid (2018) examines international legal standards in the
eld of non-state social security. Special attention is paid to international
legal acts ratied by the state relatively recently (ILO acts, European Social
Security Code). The author’s proposals for improving the current legislation
in the researched area are highlighted.
The problems of social security of people in the context of the upheavals
of the current moment - from the COVID 19 pandemic to the armed
aggression of Russia against Ukraine - are considered in the work of
Tkalych, Kolomoiets, Davydova (2022).
2. Methodology
The historical method of learning social processes makes it possible to
investigate the emergence, formation, and development of processes and
events in sequence to establish regularities and contradictions. The use of
the historical method made it possible to trace the development of non-
state social security in Ukraine.
In particular, the study of a certain historical period associated with
the adoption of the legal framework in the form of the Law of Ukraine “On
Mandatory State Pension Insurance” (Law 1058-IV, 2003) and the Law of
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Ukraine “On Non-State Pension Insurance” (Law 1057-IV, 2003) allows
tracing the origins of the modern social security system of Ukraine. Thanks
to the historical method, it becomes clear that the process of development
of non-state social security began quite a long time ago, but until today
it has not reached its logical conclusion following the modern challenges
facing social security agencies.
The process of statistical research is quite complicated since there
is a fairly large number of statistical regularities, which turn out to be a
suitable method of learning about social processes. By applying a statistical
method, it was possible to analyze how non-state pension funds dispose
of available resources, namely, what share in the investment portfolio is
occupied by such nancial instruments as government securities, bank
deposits, and current accounts, bonds of Ukrainian enterprises, shares of
Ukrainian issuers, real estate objects, bank metals and securities of foreign
issuers. In addition, the statistical method made it possible to establish the
largest non-state pension funds in Ukraine by the number of participants,
which provides information on the popularity of such savings among the
population.
The application of the comparative legal method made it possible
to compare the norms, institutions, principles, and practices of their
application in dierent countries. The specied method is used to borrow
foreign experience in the legislative process, international unication of
law, interpretation of national legal norms, and raising the level of legal
education and legal culture. Comparative legal studies are actively used in
the science of international law and branch legal sciences.
The comparative legal method was used in the analysis of the experience
of Poland, the United States of America, Great Britain, and other countries.
The comparative legal experience made it possible to compare the amount
of payment for the services of non-state pension funds, thanks to which it is
possible to conclude the extent to which the cost of such services in Ukraine
is justied.
Due to the connection with the rules of logic and language, the formal-
legal method helps to dene legal concepts, make classication and
systematization, and create a coherent conceptual system. It provides an
opportunity to study in detail the technical-legal and regulatory aspects of
the law. The formal-legal method allows you to study the provisions that are
highlighted in acts of national legislation and the main international legal
documents that are implemented or should be implemented in the sphere
of social protection of Ukraine for eective functioning of non-state social
security.
The emergency method allows you to see the social security system as a
whole with its shortcomings and advantages. The essence of this method is
510 Yegor Krasnov, Vyacheslav Truba, Anna Hudz, Olha Potopakhina y Andrii Skorobagatko
Non-state social security: International legal comparative experience
that the properties of the whole can be greater than the sum of the properties
of its parts. In the process of increasing (combining) subsets or components
into larger functional units, these units acquire additional properties that
were absent before. These properties are called emergent.
3. Results and Discussion
3.1. International Legislation (Poland, Great Britain, Germany,
USA)
Legislation of dierent countries may set restrictions on some types of
investments or, on the contrary, oblige to make certain investments in a
certain amount. For example, the Polish government prohibited the State
Pension Fund (SPF) from investing in government bonds and obliged it
to invest most of its assets in shares. The scheme worked in 2016, Poland
demonstrated the highest return on pension fund investments of 8.3% (MK
web-site, 2021).
A signicant share of bank deposits and government bonds in SPF
portfolios contradicts the goals of diversifying the risk of pension income
and raises more and more questions about investment management and
storage of pension funds, the justication of charging excessively high
fees for SPF administration. In addition, the lack of diversication of the
investment portfolio after 13 years of operation of the SPF system raises
questions about the legitimacy of the accumulation system. Indeed, the
system of the third level in Ukraine is a system of SPFs, which have almost
the same structure as the investment portfolio (Bond, 2018).
If the asset management company follows a cautious policy and chooses
high-yielding instruments, the capital of NPF participants can signicantly
increase. In the case of investing savings in high-risk instruments, future
retirees may even lose money. Compared to bank deposits, the state does
not guarantee contributions to pension funds. We would like to remind
you that the Deposit Guarantee Fund of natural persons guarantees the
payment of deposits, in the event of bank bankruptcy, in the amount of up
to UAH 200,000 (Law 4452-VI, 2012).
Despite the similarity of the structure of investment portfolios, fees for
services in non-state pension funds can dier signicantly. The limit of
annual expenses that non-state pension funds can deduct directly from the
accounts of participants is set by the National Financial Service Commission
at the level of 7.0% of the net value of the pension fund’s assets. This is a
very high price for the services provided (International Monetary Fund,
2017). In connection with this, most non-state pension funds legally retain
a very high fee for the provision of relevant services.
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NPFs in Ukraine each year charge an average of more than 4% of
the accumulated pension capital for service fees and therefore are very
expensive for participants. As an example, in the United States, large
mutual investment funds (FIDELITY, VANGUARD) today oer securities
to investors with zero service fees. In turn, in Ukraine, these costs are not
disclosed to the participants in an understandable form and properly.
During several meetings of USAID Financial Sector Transformation Project
employees with market representatives, most of them agreed that the
maximum amount of expenses “should not exceed 3%.” However, even 3%
is too much (USAID, 2019).
International experience supports the claim that the commission fees
of pension funds and other service providers are often opaque, hidden, and
incomprehensible to ordinary investors.
It is important to note that they can signicantly reduce retirement
savings and future benets/annuities. Many investors don’t realize how
much of their pension is lost in fees/fees. In the UK, a 2016 study by the
Transparency Task Force found that pension funds can routinely charge
members’ funds more than 100 dierent types of fees and service charges,
most of which are hidden from consumers (Bond, 2018).
Despite this, in Great Britain, the non-state pension system is the
most popular among the population. And although the corresponding
contributions are quite large, the private pension provision is gradually
replacing the state one. To date, about 70% of the total amount of pensions
paid in Great Britain is accounted for by non-state payments.
The decrease in the share of state pensions in the total amount of pension
money is a logical and natural trend. Even though the UK government
regularly indexes pensions, price ination is taking its toll, and now the
state pension is not only losing ground overall but is gradually losing weight
even when compared to national average wages. This is why the non-state
pension provision is gaining momentum in the UK, even though those
pensioners who participate in the non-state pension scheme are subject to
restrictions on the payment of the state pension (the state pension for years
of service is no longer provided to them).
Accordingly, every Briton can choose for himself one, in his opinion,
the most suitable pension scheme. As a rule, the third level is the so-called
occupational retirement pensions, which are provided by the employer
for its employees. The government usually encourages employers to run
occupational pension schemes by providing various tax breaks to companies
that operate such schemes. At the same time, pension contributions for non-
state schemes can be paid by both employers and employees (Tyshchenko,
2015).
512 Yegor Krasnov, Vyacheslav Truba, Anna Hudz, Olha Potopakhina y Andrii Skorobagatko
Non-state social security: International legal comparative experience
The practice of interaction between the state and non-governmental
organizations (NGOs) in the eld of social protection is quite common in EU
countries. Such an example can be the cooperation of the Stockholm Social
Services Administration with 150 NGOs in overcoming homelessness, and
protecting the rights of women and persons with disabilities (Stockholm
Satat, 2022).
In addition, in Germany, more than half of the services in the eld of
social work are provided by NGOs, and their nancing is carried out by
the state, although there is a format of self-nancing and state subsidies
(Caritas Germany, 2022).
In the USA, the state’s participation in the social security of citizens
is minimal, and only the poorest sections of the population receive state
material support. This experience needs to be taken into account, because
in Ukraine, due to citizens’ distrust of non-state providers of social services,
their number is insignicant (Dmytrenko, 2022). Therefore, the state
should create conditions for their stable functioning, which will contribute
to increasing trust in them.
At the same time, it is advisable in the legislation to provide nancing
mechanisms for non-governmental organizations that provide social
services (grants, state loans, subsidies, reimbursement of the cost of
services provided, tax benets, etc.). This will contribute to the emergence
of competition and increase the quality and availability of such services.
To implement pension reform activities, it is urgent that a stock market
be created in Ukraine and the necessary guarantees that these funds will
not disappear be formed (Boyko, 2022). It is quite a strange situation when
the annual deposit in the bank is more protected by the state than the long-
term pension contributions of citizens.
Today the number of active investors in our market is approaching
zero. We have no other choice but to adhere to international standards and
implement European practices. We cannot cultivate the domestic stock
market and create comfortable working conditions for it to the detriment of
the interests of the population. As soon as we bring the market in line with
EU norms, we will see growth in the economy and condence in nancial
instruments (Datsyuk, 2019).
3.2. International Social Standards
It should be noted that Ukraine’s implementation of international
social standards is an important component of our state’s participation in
leading international legal institutions (UN, ILO, and others), as well as the
proper fulllment of its international legal obligations in the eld of social
protection (Melnyk, 2018).
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Key and fundamental international social standards are laid down in
several international legal acts, in particular: Universal Declaration of
Human Rights (United Nations, 1948), the International Covenant on
Economic, Social and Cultural Rights (United Nations, 1966), the ILO
Convention No. 159 on vocational rehabilitation and employment of the
disabled (International Labour Organization, 1983), Standard rules for
ensuring equal opportunities for the disabled (United Nations, 1993), the
UN Convention on the Rights of Persons with Disabilities (United Nations,
2006), etc.
Active actions regarding the European integration of Ukraine determine
the need for full ratication of certain documents of the European
Union, which contain social protection standards. For example, Ukraine
partially ratied the European Social Charter. Ukraine has not acceded
to the following provisions: Article 2, paragraph 3 “Right to fair working
conditions”, Article 4, paragraph 1 “Right to fair remuneration”, Article
12 “Right to social security” (joined paragraphs 3 and 4 in the 2017 year),
Article 13 “The right to social and medical assistance”, Article 19 “The
right of migrant workers and members of their families to protection and
assistance”, Article 25 “The right of employees to the protection of their
rights in the event of bankruptcy of their employer”, Article 31 n 3 “The
right to housing”) (Council of Europe, 1996).
Also, the norms of Ukrainian legislation on the number of pensions and
other social payments and benets do not fully correspond to European
social standards. The above determines the need to take into account the
provisions of EU documents when improving the legislation of Ukraine.
Also, following the text of the ILO Recommendation No. 202 on
minimum levels of social protection of 2012 (paragraph 16), it is declared
that strategies for expanding the scope of social security must ensure
support for vulnerable population groups and persons with special needs.
And although these provisions are recommendatory, members of the
International Labor Organization must take them into account during the
legislative process in the eld of social protection.
Yes, it is still too early to talk about the eectiveness of these measures
due to the low level of support for such categories of the population as
internally displaced persons, homeless persons, homeless children, the
poor, etc., which is explained by the presence of gaps in the relevant special
laws and insucient funding. Therefore, the system of social protection
institutions is insuciently developed, which is not able to ensure the
rights of the above-mentioned persons at the proper level, which, of course,
negatively aects the improvement of their social situation (International
Labour Organization, 2013). The solution may be their support by the
non-state sector through means of social services and provision of in-kind
assistance.
514 Yegor Krasnov, Vyacheslav Truba, Anna Hudz, Olha Potopakhina y Andrii Skorobagatko
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ILO Convention No. 117 (International Labour Organization, 1962)
contains only one article that can be applied to non-state pension provision.
Thus, Art. 13 of this act indicates that voluntary forms of savings are
encouraged among employees and independent producers (Medvid, 2018).
This suggests the possibility of their participation in the third level of the
pension system of Ukraine – voluntary non-state insurance.
The existing legal framework for the functioning of the National Pension
Fund within the framework of the third level of the pension system requires
signicant improvement. As World Bank experts (Santoro, 2017) noted, the
third level of the Ukrainian pension system has a very vague concept of
duciary obligations (Better Finance, 2017) and unsatisfactory regulation
of conicts of interest. NPFs can be freely created without establishing
signicant nancial or other liability.
The Asset Management Company’s liability is limited to the value of
its assets. Decisions of NPF board members are not always binding and,
therefore, board members are not legally bound by their decisions. Any
person (who meets the qualication requirements) can be a member of the
board of several NPFs. Finally, non-state pension funds of the third level
do not meet international standards, in particular, the provisions of EU
Directive 2016/234136 on the protection of participants’ rights (IOPR II
Directive) (Holzmann et al., 2008).
3.3. National Legislation (Ukraine)
According to Article 46 of the Constitution of Ukraine, citizens of
Ukraine are guaranteed:
The right to social protection, which includes the right to support them in
case of total, partial or temporary loss of working capacity, loss of a breadwinner,
unemployment due to circumstances beyond their control, as well as in old age
and other cases (Law 254к/96-ВР, 1996).
The Institute of Social Security and Social Protection acts as a kind of
tool, with the help of which the most acute problem of society is solved –
the problem of social inequality of personal incomes of individuals, which
is not a consequence of the unequal distribution of labor, its productivity or
the eciency of production itself (Vizhunov, 2019).
According to the reasoning of Vakulenko V.M. and Orlatyi M.K.
structurally, the social protection system is generally represented by the
following components:
1. state social protection (which includes mandatory state insurance,
state social assistance, additional social protection, and special
social protection), and
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2. non-state social security (which consists of non-state pension
security and non-state social services) (Vakulenko and Orlatyi,
2010).
Hudz (2019) also develops this opinion, dividing the system of social
protection of Ukraine into:
1. state social security, which is implemented at the expense of the
state budget of Ukraine;
2. non-state social security, which is implemented by providing
material support at the expense of non-state institutions (pension
funds, insurance organizations, banking institutions, etc.).
The modern Ukrainian pension system is a signicant component of the
social protection system of Ukraine. It underwent a signicant change in
2004 in connection with the adoption of the Law of Ukraine “On Mandatory
State Pension Insurance” (Law 1058-IV, 2003) and the Law of Ukraine “On
Non-State Pension Insurance” (Law 1057-IV, 2003). Then a three-level
pension system began to be implemented: a solidarity system, a system of
pension savings, and voluntary non-state pension savings.
The rst level includes the solidarity system of mandatory state pension
insurance, which distributes funds from enterprises and insured persons
to current pensioners through the Pension Fund of Ukraine. At the second
level is the accumulative system of mandatory state pension insurance.
This system provides for the accumulation of a certain percentage of the
employee’s salary, which is paid equally by the employer and the employee.
Funds are collected in the employee’s pension account and payments are
made after retirement.
The formation of a modern system of non-state social security is not
possible without the functioning of non-state pension security institutions,
which belong to the third level of the pension system. The Law of Ukraine
“On non-state pension provision” was designed to change the existing
pension system by creating non-state pension funds, that is, non-state
institutes of the pension provision system.
It is these institutes that make it possible to form a system of non-
state pension provisions parallel to the national one, which will allow its
participants to receive additional pension payments. In addition, non-state
pension funds eectively inuence the country’s investment development.
Currently, only the rst and third levels are functioning in Ukraine. In
addition, the introduction of the second mandatory accumulative level of the
pension system is constantly postponed, and non-state pension provision
has not yet become a generally accepted and widespread mechanism for the
formation of pension savings.
516 Yegor Krasnov, Vyacheslav Truba, Anna Hudz, Olha Potopakhina y Andrii Skorobagatko
Non-state social security: International legal comparative experience
If we compare the largest non-state pension funds of Ukraine by the
number of participants as of the end of 2019, according to the data of
the National Commission, which carries out state regulation in the eld
of nancial services markets, the list will look like this: VNPF “Emerit-
Ukraine” (70.8 thousand people), NPF “VSE” (55 thousand people), VPF
“PrivatFond” (49.1 thousand people), ONPF “OTP Pension” (45.1 thousand
people), VPF “Dynasty” (40 thousand people), VPF “Social Perspective”
(14.7 thousand people), VPF “Ukraine” (4.5 thousand people), VPF “Social
Standard” (4.3 thousand people), VPF “Pharmaceutical” (1.3 thousand
people) and VPF “Ukrainian Pens.
According to Timur Khromayev, the former head of the National
Securities and Stock Market Commission, the third level of the pension
system can be considered voluntary quite conditionally, since 99.8% of
people who participate in non-state pension funds have never deducted
money there, because they do it for, they are employers who work in this
case with aliated enterprises (Datsyuk, 2019). And although this share is
somewhat overestimated, about 90% of pension contributions are indeed
made by legal entities.
It is quite interesting how non-state pension funds manage their
available resources. The largest share in the investment portfolio of the
largest non-state pension funds of Ukraine is made up of state securities,
namely: VNPF “Emerit-Ukraine” (50%), VPF “Social Standard” (50%), VPF
“Pharmaceutical” (50%), NPF “ VSE” (49%), VPF “Dynasty” (49%), ONPF
“OTP Pension” (45%), VPF “Social Perspective” (45%), VPF “Ukraine”
(44%), VPF “PrivatFund” (43%), VPF “Ukrainian Pension Fund” (18%).
The second place in terms of the volume of investments of non-state
pension funds of Ukraine is occupied by bank deposit and current accounts,
savings certicates of banks, namely: VPF “PrivatFond” (50), VPF “Social
Perspective” (50), VPF “Dynasty” (45 %), ONPF “OTP Pension” (42%),
VPF “Emerit-Ukraine” (41%), VPF “Pharmaceutical” (37%), VPF “Ukraine”
(35%), VPF “Social Standard” (32%), NPF “VSE” (29%), VPF “Ukrainian
Pension Fund” (19%) (Tartasyuk, 2019).
Signicantly smaller investments in bonds of Ukrainian companies,
shares of Ukrainian issuers, real estate objects, banking metals, and very
little in securities of foreign issuers.
It is possible to place pension assets in such simple, conservative
instruments of the nancial market without such expensive intermediation
of pension fund administrators, asset management companies, and
custodians. Today, it is achievable to legally save for retirement by
investing in numerous international passives but diversied mutual (index)
investment funds up to 50,000 euros per year with reasonable service fees
(0.1%-1.5% per year).
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The Law of Ukraine “On non-state pension provision” (Law 1057-
IV, 2003) provides for the limitation of investment of assets of non-state
pension funds: state securities - 50%, bank deposit accounts, and savings
certicates - 50%, bonds of local loans - 20%, bonds of Ukrainian enterprises
- 40%, shares of Ukrainian issuers – 40%, mortgage bonds – 40%, securities
of foreign issuers – 20%, real estate objects – 10%, banking metals – 10%,
shares not in circulation on the stock exchange – 10%, liabilities bonds of
one legal entity – 10%, securities of one issuer – 5%, other securities – 5%.
These regulations deter funds from too risky investments. Therefore, NPF
investment strategies are called conservative (Palmar, 2021).
According to the structure of investments of non-state pension
funds, it can be seen that there are not enough investment instruments
on the Ukrainian market. According to the Report of the USAID Project
“Transformation of the nancial sector - non-state pension provision in
Ukraine: assessment and recommendations” (MinFIN, 2021), 62 non-state
pension funds of Ukraine have a similar investment portfolio structure.
As of the end of 2018, 46% of pension assets (1,264 million UAH) were
invested in government securities and 36% (986 million UAH) were placed
on bank deposits.
According to the National Commission for Securities and Stock Markets,
as of June 30, 2021, government securities occupy even more, namely 47.2%
of NPF investments (National Securities and Stock Market Commission,
2023).
Conclusions
As a result of the study of the international legal experience of non-state
social security, the following conclusions were made.
1. The experience of other countries, in particular Great Britain, allows
us to state that the system of non-state pension institutions can cover
more than half of pension payments and be very popular among the
population. Cooperation of the state with non-state social security
entities is also a common phenomenon in foreign countries.
2. The implementation of international legal norms in the spheres
of social security and the stock market is not only a necessary
component of the European integration of Ukraine but also a matter
of improving the functioning of internal institutions for the eective
operation of the non-state social security system.
3. The experience of the functioning of non-state pension funds in
Ukraine allows us to conclude the ineciency and low popularity
among the population of this method of providing a decent pension.
518 Yegor Krasnov, Vyacheslav Truba, Anna Hudz, Olha Potopakhina y Andrii Skorobagatko
Non-state social security: International legal comparative experience
About 80% of the investment portfolios of the respective pension
funds consist of government securities and bank deposits. Since the
population also, to some extent, has access to the specied nancial
instruments, it makes no sense to involve intermediaries in this
process. It is believed that the state can stimulate participants of
non-state pension insurance to reduce investment in these assets.
In addition, the upper threshold of fees for services in non-state
pension funds at the level of 7%, established by the National
Financial Services Committee, is too high. In connection with this,
pension funds receive excess prots regardless of the nancial
results of their activities.
With regard to further scientic research, we consider it necessary to
analyze in detail the directions of regulating the structure of assets of non-
state pension funds in order to preserve the assets of the population in war
conditions.
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