Pension reform is underway in Georgia, but only about half of the population is aware of it

On July 21, 2018 Georgian legislators approved an accumulative pension scheme, after years of discussion. As one of the requirements of the new law, employees with contracts who are under the age of 40 have to contribute 2% of their remuneration to the state-run pension fund, on a monthly basis. Although other employees are not legally required to do so, they may participate in the scheme voluntarily. This law is a first step in a larger reform of Georgia’s pension system. Opposition politicians have criticized the new law citing that it counters the country’s constitution as it introduces a new tax without a referendum. Several civil society groups also expressed criticism of the reform, questioning its legitimacy.

According to June 2018 CRRC/NDI survey that was conducted before the law was passed, only 46% of people in Georgia were aware of the proposed reform of the country’s pension system. People with tertiary education reported being more informed (57%) compared to the rest of the population. Although the new pension scheme primarily targets younger employees, young people were significantly less likely to have heard of the proposed changes (36%) compared to those who were older than 40 (53%). Ethnic minorities were also far less likely to know about the reform than ethnic Georgians (22% and 48%, respectively).

A majority were against the idea of mandatory contributions to the pension fund. If they had a choice of mandatory or voluntary contributions, only 17% would prefer the mandatory option, while the majority (61%) would choose the voluntarily option. Even people whose political sympathies are close to the ruling Georgian Dream party are significantly more likely to favor voluntary contributions compared to the mandatory ones.

Note: The full wording of the first question was: “There are several proposals regarding the pension reform. Which of these two proposals is acceptable for you? According to one of the proposals, employees under the age of 40 mandatorily contribute 2% of their salary to the pension fund every month. According to another proposal, employees under the age of 40 voluntarily contribute 2% of their salary to the pension fund every month.” For the question, “Which party is closest to you?” only first choice has been considered for the chart above. 

People in Georgia need to be informed better about the new pension scheme that was recently adopted. Importantly, it lacks public support even among those who feel close to the ruling party.

The data used in this blog post is available here.

A generation gap in retirement planning in Georgia

The pension system in Georgia faces challenges. According to the World Bank, in a country with a declining working age population (see slides 6 and 7), a retirement system in which the state is solely responsible for providing pensions – as in Georgia – is unadvisable. The Government of Georgia, with the help of international organizations, has been working to reform the country’s pension system, with the latest pension reform plan approved in spring 2016. The government is set to launch the new system in October 2017. With the new plan, in addition to the basic “universal” pension, still provided by the government, the employee, his/her employer, and the government will each make contributions to the employee’s retirement savings account. Each of the contributors will pay at least 2% of the employee’s monthly salary, totaling a minimum of 6% of his/her salary in a given month. Hence, an individual’s retirement savings will consist of these contributions and the interest accumulated on the retirement account.

According to the March 2016 CRRC/NDI survey, the plurality of the population of Georgia plans to or is supporting themselves in their old age with state pensions (49%) and/or assistance from their children (31%). Roughly a quarter (27%) reported that they have done nothing, have never thought about it, or don’t know what they do or plan to do to support themselves in old age. Younger people, however, plan to rely on sources of income other than state pensions more often than older people.



Note: A show card was used for this question. Up to three answer options were accepted per interview. Answer options “Saved or plan to save money in the bank” and “Rely or plan to rely on support from my relatives (besides my children)” were named very rarely and are thus combined with the answer option “Other.”

The above chart shows the distribution of answers nationwide, but there are important differences by age. The majority (72%) of the population 56 years old and older name government pensions as a means to support themselves in old age. In contrast, only 29% of young people between 18 and 35 years old report planning to rely on government pensions when they get old.


Note: Answer options “Made or plan to make investments”, “Saved or plan to save money, but not in the bank”, “Saved or plan to save money in the bank”, and “Bought or plan to buy a house/apartment for rent or sale” were combined with the answer option “Other”. 

Government should encourage the diversity of options for retirement planning that young people already report they plan on using as it may reduce dependence on state pensions in the long term. Awareness raising campaigns about such options are also important for supporting citizens in making informed decisions, and could be integrated into the campaigns already planned before the launch of the new pension system in 2017.

The data presented in this blog post is available at CRRC’s Online Data Analysis (ODA) tool.

Economic Liberty as a Response to Georgia's Social Problems

Murtaz Kvirkvaia, a CRRC fellow, investigated a range of social problems in Georgia. According to his findings, 55% of the population lives on the brink of poverty and 9.6% of the population is extremely poor. By Kvirkvaia’s estimations, the unemployment rate is 3.5 times higher than the official data claim and a third of economically active citizens are jobless.

However, the most vulnerable of groups, the fellow argues, are pensioners. The analysis showed that the pension system is founded on an intergenerational contract, where today’s pensions are being paid by future generations, which makes pensioners’ social problems impossible to resolve.

Based on his research, the fellow put forth a framework to resolve Georgia’s social problems. He argues that the state cannot play the leading role in resolving social problems for the majority of the population, like it used to do during the Soviet era. Accordingly, Kvirkvaia considers economic liberty as the main factor in economic growth and the best solution to social problems. Economic liberty would enable the government to liberate itself from the necessity of solving economic and social problems that should not fall within its purview. For instance, the fellow argues that a system based on an intergenerational contract, which underlies what is known as the “Bismarck model” for pension systems, is effective only in cases where the number of employed people is four times larger than the number of pensioners; this is clearly not the case in Georgia, which must develop a pension system that is more reliant on the market.

If you are interested in research about economic liberty in Georgia, you can get in touch with the scholar directly.