Decent Pensions Instead of Social Aid
31 October, 2013
Decent Pensions Instead of Social Aid
The Georgian Government plans to boost pension fund development in the country in order to ensure decent income for Georgian citizens at their higher ages, with sums much higher than the currently active pension rate that stands at subsistence minimum of GEL 150. But the question is, how to achieve the target with high unemployment level in the country.
“We have no real pension in the county today. What we have is a social aid to aged people and we
have to establish a real pension system in Georgia,” Nodar Khaduri, Minister of Finances, stated when commenting on the recent governmental initiative to boost pension funds in Georgia. “However this will be a long process.” The project launched by the end of 2012, when the newly elected Georgian Dream political coalition stepped into office. Details of the pension reforms are however not disclosed yet, as the governmental commission is currently chiseling them in close cooperation with the World Bank. As of now, the question is - whether or not government will tax employees by extra tax for pension funds or will deduce due payment from the already paid income tax. At any rate, the payment should be differentiated, Gigolashvili believes.
“If for instance, the state makes GEL 5 as an obligatory monthly payment for pension, it can be very big sum to those whose income is GEL 100 but very small who enjoys high salaries of GEL 2 thousand. This model should be implemented step-by-step in compliance with the economic development of the country and of course the now active pension GEL 150 should be kept to ensure minimal subsistence to disabled and socially vulnerable people,” Giorgi Gigolashvili, Head of Georgian Insurance Institute, explained to Georgian Journal.
But sector pundits believe this will be a complicated process against the backdrop of 15% unemployment level, i.e. 305 thousand compared to the 1.7 million employed, if hold to the 2012 statistics. More than that, only 662 thousand out of the 1.7 million is actually employed or are paid salaries whereas the remainder [exceeding million] is self-employed or makes its living through household agriculture in regions and scarcely manages to keep two ends together. As a matter of fact, there are five pension funds at insurance companies but they incorporate slightly over 18 thousand people or around 1% of all employees. And this portion is made by corporate clientele mainly from financial sector where salaries are high. But besides the high unemployment and low income rate the lack of trust in long-term money savings hampers the pension fund development in Georgia. The point is that pension fund principle requires average 4-5 decades of payments to pay a decent pension back, whereas a Georgian consumer tends to feel suspicion towards such a long-time investment. Besides, although the average salary of employed workforce stands at GEL 712 per month by the official statistics, the salary of the overwhelming majority employed in small business ranges from GEL 300 to 500 and edges downward yet more. On the other hand, banks offer more short-term and lucrative deposits exceeding pension funds yield by around 2-3% and people who can afford to save money prefer banking deposits to ensure quick and guaranteed returns rather than to wait 40 years for ambiguous profits from pension funds. Therefore, Gigolashvili, believes pension funds cannot develop unless the state gives an incentive through law and suggests state guarantees. Underdeveloped securities market is also a problem. It is a common knowledge that pension funds invest money is securities to witness higher profit and share this profit to its clients. Georgian government discusses the state securities as one of the key options to guarantee the state support and pay-back. But this increases the voluminous internal state debt that currently stands at GEL 1.5 billion. Davit Aslanishvili, securities market analyst, indicates that the only way out is to boost securities market too, to create investment opportunities in private sector.

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