pension reform

Details of the Government Pension Reform Project

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The Government of Georgia plans to set up a partially compulsory pension reform system from the second half of 2018. The Ministry of Economy has already published the draft normative acts.

Based on the proposed reform, a fixed percentage of a person’s monthly income will be transferred to a special pension fund. The money will accumulate interest until a person reaches pension age (65 years old), after which they will then receive the money.

Citizens will receive the accumulated funds on top of the basic state pension (180 GEL per month). Citizens will not receive the full sum in the first payment, however; the money will be distributed in installments according to the number of years of life expectancy for men and women after the pension age.

The reform aims to transfer the burden of providing pension funds from the state budget, to citizens. It is a long-term project that will have noticeable results in 40 years or more.

Any citizen who receives a salary based on a work contract will be automatically enrolled in the pension scheme. Participation in the system is partially compulsory. People over 40 will have a choice whether to opt-in the system or not; people under the age of 40 will be obliged to participate.

According to the pension reform project, employees, employers, and the state will have to make monthly payments into the new pension fund:

Employed people - 2% of their salary will be transferred to the pension fund;
Employers - 2% of salaries they pay will be transferred to the pension fund;
State - 2% of income tax revenue received from every employed citizen will be transferred to the fund.

The reform can be understood as an implementation of a new tax. Based on the above-mentioned percentages, employers will have to contribute 6% from monthly salaries to the pension fund.

Under the Economic Liberty Act, the government is obliged to hold a national referendum regarding new taxes. However, the World Bank says that the reform does not represent a new tax for the population, and therefore there is no obligation for holding a referendum.

Additionally, according to the reform, households with an annual income of over 60,000 GEL will have some benefits. They will only have to pay 2% of the 60,000 GEL, which amounts to 1,200 GEL in a year. This privilege will apply to the wealthiest 1% of the population.

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