Issue 2, 2015. April-May

   

GEORGIA PLANS FOR A NEW, PRIVATE PENSION SYSTEM

With fewer births and a growing number of pensioners, the Georgian social pension system - and the country's budget - is facing a serious threat. But the economy ministry is working to create a voluntary private pension scheme to help employees save money to finance their own retirement. Investor.ge spoke to Otar Dzidzikashvili, the head of the pension reform unit at the ministry, about the plans and what the fund could mean for the economy.

In just fifteen years, Georgia could have close to a million pensioners on the books - a huge expense for the country's developing economy, even at the 150 lari currently paid out every month.

"The government simply cannot keep having 1 million pensioners on the payroll," Otar Dzidzikashvili, the head of the pension reform unit at the economy ministry, told Investor.ge.

"The government cannot increase the pensions. The only way the pensions can increase is by having an additional income stream, and an addition source of income, for future pensioners. This is where the private pension system comes in."

A voluntary fund for employees

Dzidzikashvili said the concept for the planned private pension scheme, which is currently waiting government approval, lays out a 2+2+2 voluntary system for legally employed workers: all three parties - the government, the employer and the employee - would put two percent into the system for a total of a six percent payment. The employee's two percent would be in addition to the 20 percent social tax currently taken out of paychecks.

While the new system would cost the government an estimated 120 million lari in the first year, the benefits are worth it for both the state and the employees in the long run, Dzidzikashvili said.

"I wouldn't call this money a loss because this money is reinvested into the economy and generates additional growth, additional income," he said.

For the employees, the two percent sacrifice during their working years will translate into a second stream of income during their retirement, he said.

"Whatever is in place as social pension will remain in place so you are not messing up with that system. But on top they will receive an extra income from their private pension," Dzidzikashvili said.

A stimulus for the economy

While the funds will be able to invest the money, they will have to follow strict guidelines that will minimize risk, Dzidzikashvili said.

"I would like to keep expectations low. I think it is an exaggeration to say that it will be a driver of the economy. However, it is going to provide a huge stimulus for the economy, especially for large corporations that would like to have funding to grow and to expand," he said.

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