Pension System Reform in Georgia - Comments and Alternatives

On 31 October 2017, the Government of Georgia publicly presented her reform plan for the country’s pension system. The draft law envisions a new pension savings scheme that is based on personal accounts and does not include any element of solidarity. The principle is “everyone for him- or herself”. As all workers over 40 years of age would have the possibility to opt-out of the new pensions scheme, hundreds of thousands of Georgian citizens will remain without a decent pension in the future. Thus, the government proposal does nothing to alleviate the threat of massive old-age poverty. Alternatively, the Georgian government should strengthen the basic pension, and develop a second pillar of the pension system that includes two tiers: a mandatory pay-as-you-go (PAYG) scheme that would deliver immediate benefits from 2020 onwards, and a funded defined-contribution scheme mandatory for workers up to the age of 50 that would increase security in the long run. The overwhelming majority of European pension systems have pay-as-you-go-schemes at their core. The counter-argument that PAYG is not possible in Georgia due to the challenging demographics of the country is not valid, as the new system would start from scratch.