Georgia Trying to Avoid Pension Crisis

The FINANCIAL — In a few years the budget of Georgia will not have enough money to cover pension payments, according to the Ministry of Labour, Health and Social Affairs.

The FINANCIAL — In a few years the budget of Georgia will not have enough money to cover pension payments, according to the Ministry of Labour, Health and Social Affairs. The Ministry is now consulting with the World Bank on legislation for establishing a pension fund. The law on a pension fund was adopted in 2001, but was cancelled by the previous Parliament formed mainly by members of the National Movement, according to Nodar Khaduri, Minister of Finance.

Officials from the Social Protection Department say that the social pension which is available in Georgia nowadays cannot provide sufficiently for the elderly segments of the population.

“Unfortunately Georgia is included in the list of aging nations, which means that the number of people in retirement age is increasing sharply,” said Gia Kakachia, Head of the Social Protection Department at the Ministry of Labour, Health and Social Affairs of Georgia. “About 30 percent of the Georgian population will be in retirement age by the year 2050, according to the United Nations. If we do not start thinking about this problem today and acting toward finally solving it in the country, then we will face a very serious danger – where the state budget will no longer have the ability to ensure the provision of pensions for the elderly,” he added.

The current pension is in accordance with the minimum monthly subsistence amount per capita which is GEL 146.1 or USD 88, according to GeoStat. The minimum pension in Georgia was recently raised from GEL 125 to GEL 150. This can hardly cover the utility expenses of even one person in a family.

The local consumer basket in Georgia is made up of 288 products, according to GeoStat. The percentages of products and services in this basket are as follows: 30.7% on foodstuffs and non-alcoholic beverages; 8.8% on utilities (gas, electricity and water); 9.0% on healthcare; 12.7% on transport; 4.6% on education; and 5.2% on visits to restaurants and cafes. Portions of products and services included in the consumer basket cannot fully satisfy a person’s needs because they are not properly distributed.

The average monthly nominal salary in Georgia is GEL 712, according to GeoStat.

Pensioners in the country complain that while having to spend on average more than 30% of their pension on medication the rest of the amount is not enough even to cover their monthly food costs, far less all their other living expenses.

In some cases 30% of their pension is not enough to pay the cost of all the medicines they need to buy.

As Mediko Tugushi, Doctor at Aversi Clinic, says, the most common health issue related to elderly people in Georgia is high blood pressure diseases. “People above the age of 60 mainly suffer from high blood pressure diseases, prostate, ischemic heart disease, diabetes, depression, eye diseases, oncologic diseases and metabolic derangement. To treat these one should regularly take medicines such as Avecor, Corsiz, Diclopherol and others which cost about GEL 50 a month. And this does not include emergency cases,” she added.

Due to the increased deficit of solidarity pension systems some old people decide to go live in care homes for the elderly in their old age. Such houses are not free of charge and cost GEL 450 per month. There are 98 old people at state care homes for the elderly in Tbilisi and 100 people living in such institutions in Kutaisi. People mainly go to such homes from the age of 60-65, statistics show. There are non-state homes for the elderly in Ozurgeti, Kakheti and Tbilisi where about 15-20 people are living at present. The prices are the same as the state homes for the elderly.

There are about 686,360 pensioners (getting pensions amounting to GEL 104 million) living in Georgia today plus 42,147 refugees in receipt of pensions (amounting to GEL 6 million), according to the statistics provided by the Social Service Agency. There are 203,468 men and 482,892 women pensioners in Georgia today. The majority of the pensioners (137,542 people) are between the ages of 75-79, the statistics show. The minimum retirement age for women is 60 years and for men – 65 years.

The largest sum spent on pensions after Tbilisi is in the Imereti region. The smallest amount is spent in Racha-Lechkhumi and Lower Svaneti. The amount of pensions and the number of pensioners by region is as follows:
Tbilisi – 184,544 pensioners – GEL 28 million; Guria – 25,560 pensioners – GEL 3 million; Racha-Lechkhumi and Lower Svaneti – 10,739 pensioners – GEL 1 million; Kakheti – 65,904 pensioners – GEL 9 million; Imereti – 121,115 pensioners – GEL 18 million; Mtskheta-Mtianeti – 18,532 pensioners – GEL 2 million; Samegrelo-Upper Svaneti – 76,790 pensioners – GEL 11 million; Samtskhe-Javakheti – 28,803 pensioners – GEL 4 million; Lower Kartli – 60,223 pensioners – GEL 9 million; Shida Kartli – 46,179 pensioners – GEL 6 million; and Adjara – 47,971 pensioners – GEL 7 million.

In 2030, the population of Georgia will reach 4.4 million, an increase of just 0.2 percent from 2010 and a decrease of 15.2 percent from its peak in 1992, according to Euromonitor International.

In 2030, the segment of the population aged 35-45 will account for 16.8 percent of the total, and will see an increase of 17.8 percent from 2010, forecasts Euromonitor International. 14-34 year olds will see a significant decline in numbers, with the number of Georgians in this age range expected to fall by 24.2 percent between 2010 and 2030. With the number of births in decline, there will also be a sharp fall in the number of children aged 0-6, with a projected decline of 13.8 percent.

“Both male and female parts of the population are aging rapidly,” said Giorgi Tsuladze, demographic expert of the Institute of Demography and Sociology. “The median age of females will be 45.6 years in 2030 – 5.5 years greater than in 2010. The median age of males will rise by 4.9 years in 2010-2030 to 39.8 years. The difference in median age is quite large due to the higher life expectancy of women, greater number of male births and greater migration of men. According to all the forecasts the Georgian population is aging rapidly and the number of people in retirement age will be higher than the number of people in employment age,” said Giorgi Tsuladze.

“In 2014 the legislation bases will be prepared for establishing pension funds in Georgia. Still it is not decided yet whether it will be a state pension fund or a private one. Also, we still do not know the minimum age of the people who will be saving money for their future pensions and the minimum amount of money which will be cut from their salaries and sent to the fund. At this stage we are supposing that it will be people above 45 years that will be able to start saving money and 20 percent of their salary will be enough to create a safe amount for their old age. We think that perhaps the better choice is to make a difference between the age and money limit, because people of different ages have different times for saving money. They need to have equal conditions. The first person who will start saving money in the pension fund will get their pension after 15 years which means that Georgia is late in implementing this reform, unfortunately,” Kakachia said.

“The pension fund must be obligatory for everyone because people cannot forecast the risks and they are used to living for today and not thinking about their future. Also a very important thing to ensure is that the money should be secured and people should have guarantees that they will not lose this money,” he said.

“A pension model based on the principle of saving is an individual nature of accumulating a pension with the size of the pension depending on the total amount of pension contributions and the success and financial indicators of the investment strategy implemented by the pension funds,” said Nino Evgenidze, Executive Director of the Economic Policy Research Centre. “In conditions where the economy grows and the financial market is developed, the savings model is characterized with a sustainable increase when the return on investments exceeds the rise in inflation and salaries. At the same time, the increase in the share of “savings” against the GDP creates strong stimuli for economic growth,” she said.

“A risk is that given the cyclic nature of economy, growth is not always irreversible. In the event of economic decline and crises, which have become frequent of late, the accumulated resource may devaluate because of a decrease in the price of capital market instruments. At the same time, participants in the savings pension scheme are much more vulnerable to market risks and inflation,” Evgenidze added.

The amount of Georgia’s state budget allocated for its health and social systems in 2013 is 32%.  The share of the budget that is spent on the Ministry of Labour, Health and Social Affairs is the largest in comparison with all the other sectors. The amount is GEL 2.345 billion, and nearly 70% out of this financing is allocated for pensions. The State Budget will be increased by GEL 355 million in 2014 but the pensions will not be raised any more, Kakachia said.

“The pension will be increased for only one reason – if the minimum monthly subsistence amount per capita will be increased,” he said.

“The principle of Pay-As-You-Go does not work in Georgia as perfectly as it did years ago. This is because of social, economic and demographical problems. The nation is aging rapidly and less people are employed. I understand why the young generation cannot afford to care for the old,” Kakachia said.

“If there are two pensioners in a family they get social assistance from the budget together with their pension of course,” said Nodar Khaduri, Georgia’s Finance Minister. “I understand that it is not much and I know that the standard of living in Georgia is low. But we did as much as we could in increasing pensions and social assistance. The assistance for refugees will be GEL 45 from 2014. All people are insured in Georgia. These factors may somehow help the people in their retirement age to live more or less normally till a pension fund is created,” he added.