As Russia’s war takes its toll on Ukraine’s military-capable population, the country faces a ticking demographic time bomb that is forcing the adoption of unpopular decisions. Ukraine’s dwindling adult population can no longer sustain a solidarity pension system, in which each working adult supports one pensioner — a ratio that could be one of the highest in the world.
Each adult will now maintain their own pension fund account to supplement the very basic state social assistance. This step, the adoption of which was repeatedly postponed since Ukraine’s independence, is expected to finally displace the vestiges of a system that shackled Ukraine’s economic development for three decades.
However, it also highlights the demographic peril that the country devastated by war faces – and that Ukraine will need to make strides toward active seniorhood, replicating approaches that Western Europe has used as it aims to tackle the problems of its own aging population.
The reform, set to launch on 1 July 2025, promises to revolutionize Ukraine’s pension system. Rather than relying on the state, the new system encourages citizens to plan for retirement through pension funds, sparking a shift towards open-market financial practices at the national level. This change opens up a long-term, yet unseen potential for Ukraine’s post-war stability and reconstruction.
The Trojan horse of Ukraine’s economy
Ironically, while Russia’s invasion has dealt a blow to the Ukrainian population, it is also accelerating some long-delayed reforms in the country.
The “intergenerational contract” that bestowed social stability on post-WWII societies with their high birthrates, allowing each working generation to pay for the last, expired in Ukraine just as it did in Western Europe in the 2000s when nations hiked up the age of retirement and fostered private pension fund creation.
Ukraine attempted the first major pension overhaul in 2011 by raising the retirement age, capping state pensions, and introducing personal pension accounts. However, these partial changes failed to tackle the disparities between different groups of pensioners or improve the Pension Fund’s sustainability. As a result, they became a target for populist politicians, who promised to increase the meager pensions of their retired voters.
Now, Ukraine simply has no choice.
The full-scale invasion has plunged Ukraine’s fertility rate from 1.2 children per woman, Europe’s third-lowest, to 0.9, above only South Korea and Hong Kong, and far below the population replacement rate of 2.2.
Moreover, nearly five million Ukrainians have emigrated due to the war, most of them being of reproductive age: 60.7% working-age adults, 33.2% children, and only 6.1% are elderly. This further exacerbates the demographic situation, as only 40% say they will definitely return. In addition, nearly 4.7 million citizens live in Russian-occupied territories, making them unable to contribute to Ukraine’s economy.
These factors have led to an accelerated aging process in Ukraine and increased strain on its war-weary economy as the median age has increased from 41 in 2020 to 45 in 2024. Currently, 25% of the population is aged 60 or older, and this share is expected to grow, as noted by Daryna Marchak, First Deputy Minister of Social Policy of Ukraine.
To complicate matters, a significant chunk of the economy is informal, meaning not all workers are paying into the system. Additionally, Ukraine’s broad pension eligibility, based on years of service rather than just age, has led to a surge in retirees. Many of them also work informally or part-time but still count as pensioners, further straining the system.
This situation has shackled Ukraine’s economy for decades: in 2024, 26% of the state budget was spent on pensions and social assistance, which could be among the highest in the world, topping such pension record-holders as Greece (23%) and Italy (20%).
The much-needed pension reform aims to ease the tax burden on the working population and improve the efficiency of state finances. The looming demographic challenges have made change urgent: without reform, the working population will face even greater strain, and already-low pensions will drop further.
Additionally, the current system offers no guarantees to today’s workers, as their taxes are solely used to support current retirees.
Empowering workers with a three-tier reform
The proposed pension reform will replace the old solidarity system with a new, three-tier structure. The first tier offers a basic pension, set at 30% of the minimum wage, serving as a safety net for all pensioners, funded by taxes — much like the current system but on a smaller scale.
The second tier is a mandatory insurance pension, calculated based on a person’s lifetime social insurance contributions, usually linked to their salary. This mechanism seeks to motivate workers to move out of the informal economy, a key step in rebuilding Ukraine’s war-torn economy and supporting its recovery, by directly connecting their tax payments to future pension benefits.
The third tier, launching in 2026, is a funded pension made up of both compulsory and voluntary components, with no upper limits for the latter. This tier has the greatest potential impact, encouraging people to invest in both state and private pension funds, boosting their retirement savings while also driving economic growth through investments.
Ukraine’s Ministry of Social Policy highlights that the new pension system will enable workers to grow their future pensions throughout their careers. The reform is projected to increase retirement incomes by an additional 15–20% of an individual’s average lifetime salary, complementing the solidarity-based pension without adding extra financial pressure on current workers.
A key potential strength of the new system lies in its automatic pension adjustments. As the minimum wage increases, the base pension will automatically rise, while the value of pension points — determining the overall pension amount — will also grow in line with average wage increases.
This mechanism ensures a consistent and equitable adjustment of pension benefits across the population, promoting fairness regardless of income level, though the final amount will depend on an individual’s salary and the total voluntary contributions they make during their working years.
Disrupting Russia’s decade-long hybrid influence
In addition to driving a major economic shift, the introduction of personal retirement savings accounts, separate from the state pension fund, marks a significant break from the Soviet-era system, signaling a move towards individual responsibility for retirement. Unlike the previous model, which promoted early retirement and dependence on subsistence, the new system encourages longer careers and proactive financial planning.
This change reimagines retirement not as a time to withdraw, but as an opportunity for continued engagement, fundamentally shifting attitudes toward aging. Younger generations, now responsible for planning and investing early, are likely to approach work, savings, and retirement differently from their parents, who often depended on family support due to minimal, uniform pensions.
The reform also offers a crucial advantage: its potential to improve Ukraine’s electoral landscape.
For years, pro-Russian politicians capitalized on the simplicity of the Soviet-era pension system, offering higher flat-rate benefits and tapping into nostalgia for Soviet stability while ignoring the system’s financial collapse. Elections became a race to make unrealistic pension promises, with Moscow-aligned parties leading the charge in social populism.
Pro-Kremlin parties have long exploited pension anxiety, claiming that only closer ties with Russia could sustain the generous Soviet-style benefits, while portraying Western reforms as a threat to retirement security — conveniently ignoring the unsustainability of their own system.
The shift to personalized retirement accounts changes the game. With pensions tied to individual contributions and investment decisions, promises to double personal accounts become impossible, shifting the focus from empty promises to practical solutions.
By shifting away from collective pension management, Ukraine could strengthen its democratic transition and weaken one of the Kremlin’s most powerful tools of political manipulation, which it has long used to destabilize pro-EU regimes in the post-Soviet space.
Pension reform is just the start of tackling Ukraine’s aging population and depopulation issues. As Europe’s largest country, Ukraine faces long-term challenges that could threaten national security and drain tax revenues, both vital for infrastructure and public services. With a labor market that excludes many, businesses are already grappling with severe worker shortages, a problem worsened by the ongoing war.
Pension reform is just one component of Ukraine’s broader Demographic Strategy 2040, adopted in September 2024. This governmental initiative aims to preserve the nation’s war-affected human capital by fostering a labor market inclusive of elderly people, war veterans, and people with disabilities while also promoting active aging.
“The goal of the strategy is to stabilize the situation and shift key demographic trends from negative to positive. Without this and without substantial changes in employment levels, we cannot achieve a significant increase in the ratio of employees to retirees,” Daryna Marchak says.
She believes that the successful implementation of the demographic strategy could help reverse the trends. Projections suggest that under current dynamics, with no action, Ukraine’s population will fall to 28.9 million by 2040, down from the current 31.1 million on territories controlled by Ukraine.
As personal retirement accounts offer predictability the old system never could, the new approach offers Ukrainians working abroad an opportunity to contribute to their retirement savings at home, keeping a financial connection to their country’s future.
Similarly, the reformed system encourages younger Ukrainians to stay and build careers locally. With the chance to accumulate retirement wealth through personal investments rather than relying on uncertain state promises, financial security becomes a real possibility.
This could be key to the government’s goal of reaching the target population of 33.9 million, set by the Demographic Strategy, as young families often cite financial stability as a major factor in deciding to have children.
The system also sets in motion a positive cycle for Ukraine’s overall economic recovery. The surge of retirement savings generates a pool of domestic capital that can be used to fund business development and job creation — vital for attracting and retaining the working-age population. This marks a sharp break from the old model, where pensions were a financial burden rather than a source of economic growth.
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