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Accumulated Pension Reform and Initiatives from Social-Democrats

By Levan Khutsishvili
Friday, March 23
On March 12, 2018 Sector Economy and Economic Policy Committee of Parliament did not support project of the pension reform, submitted by the Georgian Government.

After the long discussions, committee concluded that project is not prepared enough and fundamental changes are needed. Some of the committee members do not agree with the offered system of pension accumulation, as they believe that on the one hand it doesn’t guarantee growth of the pension in nearest future and on the other- it is not transparent and clear, where and how will the government invest money accumulated from employees.

Accumulated Pension Reform was presented on October 1, 2017 and is based on following postulates:
1. Employees under the age of 40 will be obliged to transfer 2% of their monthly salaries in to the individual pension account, employer will add 2% of the employee’s salary and government will add 2% of the salary.
2. For employees above 40, involvement in the system will not be obligatory.
3. Self-employed citizens will transfer 4% of their monthly income and government will add 2%. Conditions with age are the same as for employees.

Project of the reform was criticized in many directions, and after the unsuccessful discussion in Sector Economy and Economic Policy Committee, political fraction “Social-Democrats” asked government to organize discussion about the topic and study all alternative versions of the reform if there will be any.

Social-Democrats themselves have a project of the reform, that differs, from government's initiative in many ways.

As Beka Natsvlishvili, Member of Parliamentary Fraction “Georgian Dream – Social Democrats” declared in the interview with “Maestro”, pension reform is vital for the country and it should be discussed among the several interested actors.

“It is a fact that pension reform should be implemented. This is inevitable, because today we do not have a Pension System, the one we have is Social Help, as two fundamental issues is not taken into consideration: it is a seniority and working experience. Therefore, there is a need for this reform, it should be understood by the society and business,” said Beka Natsvlishvili.

According to the Social-Democrats project:
1. Basic Pension will be increasing by at least 2% per year, which is around 20 GEL growth. As Mr.Natsvlishvili said, pension is measured by so-called replacement coefficient, which implies pension relative to average wages, which is 1130 GEL and is increasing. So the initiative from Social-Democrats is that Basic Pension should not be less than 17% of the average salary.
2. Second difference is so called Solidarity Column between Generations, which will be based on 2+2 principles (state and employer will contribute 2-2% of employees salary to the pension fund). According to this initiative young generation will pay for the pension of the older generation, and the working experience and seniority will be taken into consideration. Difference between Solidarity Column between Generations and the Governmental project is that, government was planning to give pension to the person after 20-25 years, as any citizen under 40 is obliged to pay pension fund. Pension age starts from 65 for men and from 60 for women. Social-Democrats say, that if the new pension reform will be implemented in 2019, according to their project, person will receive increased pension from 2020, so it will not be necessary to wait 20-25 years.
3. Third part of initiatives is related with the change of age boundary. Social-Democrats believe that instead of age 40, citizens under the age of 50 should make compulsory contribution and above 50 years it should be voluntary.

Social – Democrats claim their initiative is focused on creation of social equality in Georgia.

“You know that revenues are very different. The level of inequality in respect of salaries is very different and Solidarity Column between Generations consists the solidarity fund where part of the contributions will be accumulated and be spent on creation of Social equality,” stated Beka Natsvlishvili.