universal pensions in Georgia

The Social Security Administration (SSA) of the USA informs us that Georgia, a former member of the Soviet Union, will require workers to contribute up to 6% of their wages to private pension funds beginning January 2019. Georgia is adding a second tier to its first tier: a universal, government-financed pension of 180 tlari [US$69] a month for men from age 65 and women from age 60. The SSA describes this as a “subsistence-level benefit”, but Georgia is a poor country, so the pension amounts to about 20% of per capita GDP. In the US, a benefit equal to this portion of per capita GDP would be nearly one thousand US dollars a month.

I was previously unaware of  universal pensions in Georgia, so will search for more information. When were they introduced? Have benefits changed over the years? What is the fiscal cost as a proportion of all government spending? These are some questions that come to mind. The SSA provides useful data on Social Security Programs Throughout the World, but concentrates on contributory pensions, with little information on non-contributory, tier 1 pensions.

On September 1, Georgia’s government approved the Accumulated Pension System (APS), with implementation set for January 1, 2019. The government created the new mandatory individual account program to supplement the existing flat-rate universal old-age state pension ….

[K]ey features of the APS include:

Coverage: The APS … will be mandatory for workers younger than age 40. …. All self-employed persons will also be allowed to opt out.

Financing: To fund the individual accounts, employees and employers will each contribute 2 percent of gross monthly earnings up to 60,000 tlari (US$23,000), and the government will contribute 2 percent of earnings up to 24,000 tlari (US$9,200) plus 1 percent of earnings above 24,000 tlari up to 60,000 tlari. For most earners, the total contribution rate will be 6 percent of gross monthly earnings. Self-employed persons who participate must pay both the employee and employer contributions.

Benefits: A participant reaching the normal retirement age of 65 for men or 60 for women will be able to withdraw their full account balance as a lump sum or convert it into a monthly annuity. ….

Investments: Participants will be able to choose from three types of funds with varying levels of risk (low, medium, and high). ….

Administration: A newly established Pension Agency of Georgia (PA) will be responsible for the overall administration of the APS. ….

Critics of the APS have noted that the program may cover a relatively small portion of Georgia’s population. According to 2017 data from the National Statistics Office, around 820,000 persons (or 48 percent) of the country’s reported 1.7 million workers reported working for an employer, and among this group only 327,000 were younger than age 40 and therefore covered mandatorily by the APS. The remaining 52 percent of the work force are self-employed, and most of them do not have stable monthly incomes.

US Social Security Administration, “Georgia Approves New Supplemental Pension Program“, International Update, October 2018.

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