Parliament Approves New Pension System for Georgia
By Levan Khutsishvili
Tuesday, July 24
The Parliament of Georgia has supported the draft law on a new pension model, which envisages accumulation of money for pension in earlier years.
Deputy Minister of Economy and Sustainable Development Ekaterine Mikabadze presented the draft law to the parliament. According to her, the accumulated pension system will accumulate savings proportionate to the salary generated by the employer over the years to receive a higher replacement coefficient.
"The answer to social challenges is the accumulated pension scheme. With this reform, the state will significantly help the Georgian population save money. We create a real basis to deal with the problems that exist today in terms of justice and effectiveness. This is the main goal of the reform. However, it should also be noted that the reform has a positive economic impact. As a result of the reform, savings will be increased in the economy, and new financial resource will be accrued, which is a sharp motive for the development of the capital market. This is an alternate long-term resource that enables businesses to implement new productive investments that will create new jobs and help economic growth," saidMikabadze.
Initiators of the bill explain the need of the reform. According to Geostat, in 2017, 732 100 people received pensions and based on the demographical and economical calculations, it is expected that the number will increase significantly by 2030, and by 2060 the amount of pensions will be about 30% of budget revenues.Authors of the law say that pension is a heavy load for the budget and on the other hand, there is a low coefficient of the replacement (wage pension), which is 18% in Georgia and to compare with the international standards of a good coefficient - 40-50%, is very small. Government has attempted to solve this problem with accumulative pension fund.
According to the project, involvement in accumulating the system will be obligatory for employed citizens under 40, and voluntary for those employed and self-employed over 40.
The principle of accumulative pension isfollowing: 6% of the unpaid wage amount will be transferred to the individual pension account. Employees, employers and the state each pay 2%. For those whose annual salary is between 24 and 60 thousand, the state will only transfer 1%. If the annual income of a person exceeds 60,000 GEL, it will not be able to accumulate in the system.
Specialists say the pension reform was crucial and underline the importance of accumulative funds. Part of the society, who doesn’t trust the governmental institutions, questions the preservation and management of their money, doubting that the reform is reliable.