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.

Well-being of the elderly in the South Caucasus: A problem today, a bigger problem tomorrow

The world population is getting older, and this trend will likely continue as a result of decreasing mortality and declining fertility. International organizations predict that the aging of the population will cause economic problems in countries that already have difficulties in providing proper welfare for the elderly. The countries of the South Caucasus are no exception in this regard. According to the Global AgeWatch Index, by 2050, the population over the age of 60 will exceed 30% in Armenia and Georgia and reach nearly 26% in Azerbaijan, compared with, 14.7% 20.1%, and 8.8%, respectively, at present. This blog post examines the demographic composition and economic situation of the elderly in the South Caucasus countries based on 2013 CRRC Caucasus Barometer (CB) survey data. The post focuses on people who are at or above the standard retirement age (63 years old or older for men and women in Armenia, 59.5 years old or older women and 62 years old or older men in Azerbaijan, and 60 years old or older women and 65 years old or older men in Georgia), and when asked about their primary activity or situation, report that they are retired and not working. This group constitutes 12% of all respondents in CB 2013, and will be referred to as the ‘elderly’ throughout the blog post. The elderly who are at or above retirement age, but still work, are not included in the present writing. After examining the amounts and sources of income the elderly have, the blog reviews self-assessments of whether that income is enough to cover basic needs. 

In all three South Caucasus countries, citizens receive an old age pension, regardless of whether they worked or not. In Armenia and Georgia, the average pension (USD 63 and USD 81, respectively) is close to the official subsistence minimum (USD 65 and USD 79, respectively), while in Azerbaijan the average pension (USD 190) is somewhat higher than the subsistence minimum (USD 160). It should be noted that cost of living is also higher in Azerbaijan. As pensions are close to the subsistence minimums, a very low income level, the economic condition of the elderly is challenging. 

According to CB 2013, more than half of the elderly in Armenia and Azerbaijan, and two thirds in Georgia are women, which can be explained by the shorter life expectancy for males. In Azerbaijan and Georgia, more old people live in rural areas than in Armenia, and more than 40% of them in Azerbaijan and Georgia are widowed, compared with 34% in Armenia. Sixteen percent of the elderly in Georgia live alone, compared with 12% in Armenia and 7% in Azerbaijan. It is probably, in part, due to this last finding that elderly household income in Azerbaijan is higher than in other countries – the last month’s household income for more than 70% of Georgian and Armenian elderly was USD 250 or lower, while in Azerbaijan 70% had more than USD 250. Salaries were named as a source of household income by the Azerbaijani elderly more often than in Armenia and Georgia, likely because they are less likely to live alone. 

Note: The chart only shows the percentage of “Yes” responses for the five most frequently named sources of income.

When asked to rate their households’ economic situation on a ten-point scale, the majority of the elderly in all three countries named middle and low positions – codes “5” or lower. The elderly in Armenia assessed their households’ economic situation worse than in Azerbaijan and Georgia. In Armenia 52% of the elderly state that money is not enough for food while, 26% and 39% in Azerbaijan and Georgia report the same.

The poor economic situation of the elderly is further demonstrated by their need to borrow money for regular expenses. The elderly in all three countries report borrowing money for food, although, Georgians and Azerbaijanis do so less frequently than Armenians. Nearly a third of the elderly in Armenia say they borrow money for food at least monthly, while only 15% in Azerbaijan and Georgia say the same. The elderly in all three countries are less likely to borrow money to pay for utilities than to buy food.

Besides borrowing money for food and utilities, the elderly report limiting their consumption of certain products. Although such limitations are characteristic of all age groups, the elderly are more likely to do so compared to the rest of the population. Most elderly people state that they limit their consumption of meat and fish. Nearly half of Armenia’s elderly say they also limit consumption of butter and milk, while only 21% of Azerbaijanis and 31% of Georgians report the same. Armenians are also much more likely to limit consumption of fish, fruits and vegetables.

Thus, the economic condition of the elderly in the South Caucasus countries is unsatisfactory. Most of the elderly, especially in Armenia, state that their income is not enough for food and utilities. Consequently, they have to borrow money and limit consumption of certain products. This can be considered a cause for concern, especially as the share of the elderly population will increase in the upcoming decades, and the state will face further economic challenges without having worked out those of today.

New World Bank Study: From Red to Gray

On Thursday, CRRC Georgia participated in the presentation of a new World Bank study on the impact of aging in the former Soviet Union. The authors of this study call this the "third transition", the one from From Red to Gray.


The particular challenge is that aging hits most transition countries while they still are poor (so-called "aging late reformers"). By contrast, many Western European countries age when they are fairly well off, and have fairly mature market institutions.


Yet, the authors argue, early action can make this a smooth transition. In particular, they advocate (and here we are quoting practically verbatim):

• increasing the labor supply (by raising the retirement age, creating more flexible work conditions, and improving health of older workers, as well as allowing migration)
• increasing productivity (investing into education and lifelong learning, completing the restructuring agenda/integrating with competitive markets)

Moreover, they argue that sensible pension systems and health financing can curtail costs to manageable levels. Illustrating this with a salient example, Mukesh Chawla, one of the lead authors, points out that the largest part of spending on health is in the last two years of life, so that an extension of life does not mean proportionally larger spending on health.

Generally, this looks like an exciting study (the website, to advertise it again, is excellent) and the authors, quoting Longfellow, have chosen a good pitch by suggesting that there is as much opportunity in aging as in youth itself. However, at the risk of sounding like a broken record, part of the problem is that early action requires a constructive, sophisticated debate around these issues and much needs to be done to generate the climate in which this debate can take place in the South Caucasus. So far these are niche issues, and we don't even have much data to describe generational change in the region (although we are currently funding one study on this topic) . These presentations seem like a happening at an oasis, when what we need is a much bigger eco-system.

CRRC Georgia did extract a couple of slides from our Data Initiative for our panel presentation. They show that generational change seems less pronounced in Azerbaijan than in the other countries. However, these are just a few snapshots. We're happy to make these available upon request (as well as the Red to Gray book, which we have at CRRC).

Child Poverty in Armenia

Gohar Jerbashian conducted a detailed, multi-dimensional analysis of child poverty in Armenia. She analyzed the data available from the CRRC 2004 Data Initiative and from the Family Poverty Benefit (FPB) databases and conducted a content analysis of other sources. By exploring various types of socially vulnerable families (for example, those who lost their income earners, experienced hardships because of the inadequacy of survivors’ pensions, or had two or more children under the age of 14) she found that neither survivors’ pensions nor FPB provided needy children with adequate financial resources to enable them to sustain decent living standards and acquire skills and knowledge to lift them out of poverty and take part fully in Armenian society.

As a result of her research, Jerbashian provided a set of policy recommendations to combat child poverty in Armenia, the most important of which included covering poor children with quality state-funded early childhood development programs, increasing the level of single parent employment, increasing the minimum wage, introducing tax credits for families with children, revising school programs and increasing childhood health care.

Jerbashian’s paper, in English, can be found here.