Workers to pay 2 per cent of their salaries, and another 2 per cent will be added by both employers and the state towards the pension fund.
The Parliament of Georgia supported the bill “On accumulative pension” by 79 votes on 22 July. The law must be signed by the president and will enter into force in January 2019.
According to the Deputy Minister of Economy and Sustainable Development of Georgia, Ekaterine Mikabadze, the accumulative pension system will allow citizens to create savings directly proportional to the salary received over the years and get high replacement rates.
“The answer to social challenges is an accumulative pension scheme, within which the state will significantly help the population of Georgia make savings and completely share social responsibility with them. We are creating a real basis for solving problems that exist in terms of fairness and efficiency. This is the main goal of the reform,” Ekaterine Mikabadze said.
How to save up for retirement now?
Each Georgian citizen will be provided with a pension account for monthly deposits. According to the law, employees will be required to pay out two per cent of their salary, while two per cent more will be paid to the fund by both the employer and the state. The self-employed will have to pay four per cent of their income.
Participation in pension reform is mandatory for employed persons under 40 years of age. Citizens older in age can make the decision voluntarily.
In the event of death before reaching the pension age, access to the savings will be passed to the deceased’s heirs.
The new system allows a person to postpone retirement and continue saving. However, after one reaches retirement age, the state and the employer cease to credit their two per cent. The person will be able to continue saving with their own 2 per cent installments only.
How big of a pension to expect?
As explained by the authors of the law, if a worker with an average salary of 1000 lari pays into the pension fund for 30 years their pension would be 500 lari. The new pension system does not mean the abolition of the old fixed pension, which is 180 lari (about $70) per month today. It will become a kind of a bonus to the basic pension amount.
Each participant of the pension scheme will have an individual pension account and will be provided with electronic access to it, i.e. will be able to track their savings.
Who will manage Georgians’ savings?
A pension agency will be created to administer and manage the accumulative pension system, with a governing body represented by a supervisory board. The pension agency should be able to finance itself out of the fund after it will be financed by the state for the first three years.
The authors of the bill expect that the total amount of investments will reach 400 million lari (more than USD 163 million) in the first fiscal year after the introduction of the new system.