Proceedings of The International Conference on New Trends in Social Sciences
Pension system of Georgia – reforms and challenges
In 2018, a mandatory funded pension model was introduced in Georgia and today, Georgian pension system has three pillars.In Georgia, a voluntary funded pension system was established 20 years ago, but received little attention from public and business, one of the reasons of which is lack of stimulating regulations.
Pension replacement rate from the first pillar is just under 20% – much lower than in any of the OECD member states. The fact that the amount of pension does not depend on the length of employment, decreases trust in the system.
Since 2018, the funded pension system became mandatory for persons under age of 40, for older employees, it is voluntary, but the reform does not apply to today’s pensioners and those who will be retiring in few years’ time, because they will not have enough time to accumulate sufficient amount for adequate pension levels in retirement.
If the society will not have trust in all three pillars of the pension system, chances of reversing the last year’s pension reform will rise, due to several reasons:
- a) Replacement rate from the first pillar is low;
- b) For the majority of participants of the second pillar, pension payments will start in 20-25 years’ time; such a long period of time creates uncertainty in many, about whether the long-term economic growth will be reached, which makes possible achieving an adequate level of retirement income.
Consequently, a significant part of the population may consider, that contributions to the second pillar must be diverted to the first pillar and if it happens, and pay as you go system remains the only source of pension payments, the pressure on the budget and taxpayers will be very high and it will become much harder to provide necessary financial resources for adequate pension levels.
Keywords: Georgia, pension, pension pillars, pension replacement rate, reform.