Historical context 

Georgian citizens lost their pension contributions first with the collapse of the Soviet Union when the Central Insurance Fund responsible for pensions was abolished, and then the pension in the country was GEL 14 and it was not paid for months. 

• The pension gradually became equal to the subsistence minimum, and as of today, the increase of the basic pension close to the same standard is mainly indexed to inflation. 
• Therefore, it only serves as a subsistence allowance, which is insufficient compared to the living expenses, even considering the prices of medicaments  or products;     
• In 2018, the Government of Georgia developed a pension reform that was supposed to add the funded pension column to the existing basic pension.  

What should we know? 

• It is no coincidence that the pension reform was developed and implemented not by the Ministry of Labor, Health and Social Protection, but by the Capital Market Development Department of the Ministry of Economy and Sustainable Development; 
• This system is based on the principle of accumulation on private, individual accounts, which leads to the long-term accumulation of funds;       
• Accumulated pension assets are profitable investment capital that private companies can circulate on the stock market;       
• This phenomenon is called pension privatization, and in almost all countries where it has been implemented without an intergenerational solidarity scheme, it has shown negative results in terms of financial sustainability, insufficient pensions, intergenerational inequalities, and increased poverty among the elderly.  

What does the new pension scheme envisage? 

• The reform envisages the accumulation of 2+2+2% (employee-employer-state) contributions of hired employees on individual pension accounts, which will be issued only after the employee reaches the retirement age;      
• The state contributes 1% in the case of employees whose annual income is between 24,000 and 60,000 GEL. If the income is higher, the state does not make a contribution;       
• The reform is not intended for current pensioners, whose number is almost a quarter of the country's population. Therefore, they are left with only a basic pension until the end of their lives;   
• The reform is also not oriented toward those who would reach retirement age in 5-10 years after the introduction of this system. During this period, participation in the system was voluntary for those over 40 years of age, as 5-10 years of contributions would not create any significant pension benefit.           
• Therefore, they did not consider it worth accumulating either, and shortly after the system was launched, 162,601 people left the scheme. This means that they will also receive only the basic pension; 
• The reform is aimed only at hired employees, and the scheme imposes a 4% voluntary contribution on the self-employed. In the structure of the self-employed in Georgia, only a small part is registered as an entrepreneur, and the largest part works informally, which means that this part of the workers also remains outside the scheme;  
• The reform does not take into account the important charasteristics of the Georgian labor market, since a large part of the hired workers under the age of 40 are employed in the service sector, which is characterized by low wages and unstable jobs. Consequently, their contributions will be low and intermittent;  
• The reform does not take into account the amount of real wages in the country, since it was calculated on the official average wage, which was GEL 1202 at the time of the reform. However, at that time the actual upper wage ceiling for most employees was GEL 500. 

As a result, we got a system that is designed only for a narrow segment of employees under the age of 40, who are considered highly paid in Georgia, and the rest either remain outside the reform or will accumulate an amount that will be insufficient in the future.      

In addition, since the scheme is based on individual accounts and, therefore, long-term accumulation, the pensions from the fund are not given annually to current pensioners, there is no co-financing of the basic pension, coverage of contribution interruptions, provision of social services, etc., that would have been possible in case of the intergenerational solidarity scheme.  

What was the alternative? 

In addition to the fact that the reform was not actually aimed at ensuring the proper pension provision and could not cover the majority of the population, the critics of the reform also mentioned that using pension assets to stimulate the capital market - which was the goal of the reform's authors - was also not an adequate decision, since the stock market is not developed in Georgia. 

• At the stage of developing the reform, several alternatives emerged, which were first formulated as recommendations, and then (some of them) as alternative draft laws;  
• The reform was criticized by Martin Hutsebaut, an expert on pension systems and a representative of European trade unions, who, based on the analysis of the Georgian economy, labor market and incomes, called on the government to implement an intergenerational solidarity scheme;   
• The reform was also criticized by Georgian Trade Union Confederation, that also created an alternative, model of intergenerational solidarity pillar;  
• The Social-Democratic Party's alternative bill, which also called for the inclusion of an intergenerational solidarity scheme in the reform, created significant improvements for existing pensioners from the first year of implementation, and higher pension benefits for low-income earners in the long term. The draft law was also passed in the parliamentary hearings, but the parliament did not support it.   

What did we get? 

• The government refused to improve the situation for the current and future pensioners; 
• Today, the already heavy situation of pensioners is made even more difficult by the pension credits granted by the pension provider “Liberty Bank”; 
• Even though the interest rate of credits is reduced by the decision of the government, this cannot have a significant impact on the situation of pensioners, because the existence of the pension credit system itself causes pensioners to become indebted and further impoverishes them;  
• It should be noted that this event, as well as the mentioned reform, does not have an analogue in other countries.  

In the end, in Georgia we got only a basic pension - based on subsistence allowance, and  a funded scheme, based on individual private accumulation – this is a pension system in which the main pillar needed to ensure a decent and effective pension is omitted - a strong public pension scheme based on intergenerational solidarity.  

As a result, only those who had a high income while working can have a decent pension in the future, and the rest will remain only hoping for subsistence allowance.