Gov’t to Carry Out New Pension Reform Next Year

The government of Georgia is going to implement a new pension system next year, which envisages a cut of 2% of people’s monthly income and saving the money for their pension. The accumulation pension reform has not been submitted to Parliament yet, as the discussions over it are still actively underway.

Under the new pension reform, all employed citizens of Georgia up to 40 years (around 500,000 people), will transfer 2% of their untaxed monthly salaries to the state pension fund, with another 2% to be paid by employers and 2% by the state.

This means that every month, 6% of employee's salary will go to a pension fund.

According to the statistics, people would have a comfortable old age if their pension is at least half of the average salary. Today's 180-Gel pension in Georgia amounts to only 18% of the average salary.

The bill was prepared by the Ministry of Economy with the Ministry of Finance and the National Bank of Georgia. The authors of the bill say that Georgians traditionally do not save money and only spend it, this is why they believe that paying into a pension should be obligatory.

The pension program covers citizens of Georgia, foreign citizens permanently residing in Georgia, or those having no citizenship but are employed or self-employed and receiving an income. Self-employed people will have a choice to pay into their pension or not.

After the money is accumulated in the pension budget, the money will be used by the state for investments within the country. When the people reach pension age, 65 for males and 60 for females, they will have an opportunity to use the money, together with their state pension of 180 Gel.

Experts believe the reform contains too many risks, adding the disposal of people’s money raises doubts and questions.

"There is a big risk that the government will nationalize these funds one day, as it happened in Poland and Hungary. I do not believe that our government will not act as the Hungarian and Polish governments did," said economist Irakli Kipiani.

If approved by the parliament, the reform will likely take effect in late 2018.

By Thea Morrison