Azerbaijan Urgently Needs Reform of Pension System

The draft legal acts related to the application of the funded part of labor pension and the activities of non-state pension funds in Azerbaijan were discussed at an international conference on the reform of the pension system.

The conference was held at Fairmont Baku on October 28 in accordance with the Plan of Action terminating joint twinning project of the State Social Protection Fund (SSPF) and the European Union (EU).

Twinning Project "Support to State Social Protection Fund for the introduction of the funded pillar in the pension insurance system, the formation of private pension funds and the creation of the legislative framework for the regulation of these processes" implemented SSPF, Ministry of Welfare of Latvia, the Ministry of Labor and Social Work Germany in April 2014 .

Chairman of the State Social Protection Fund Elman Mehdiyev noted that the draft reform of the pension insurance system will give impetus to the development of the financial market and the securities market, as well as the formation of private pension funds.

Earlier, World Bank Chief Economist Zoran Anushich suggested that Azerbaijan needs a thorough reform of the pension system to avoid short-term and long-term problems in the fiscal and social spheres. The expert warned that if the reforms are not carried out urgently, it will lead to a reduction of pensions and increasing pension savings deficit.

In a matter of priority it is proposed to increase the profitability of state fund and reduce its costs, and to establish a systematic control of insurance and basic pensions.

The head of the WB Baku office Larisa Leshchenko said that first of all it is necessary to ensure the financial sustainability of the pension system and the proper distribution of income of the elderly population.

WB offers to urgently increase the contribution rate for compulsory social insurance, to avoid excess expenditure over income, and not to bring the case before the financial problems. These fears are unfounded. On 1 September 2015 the SSPF revenues reached 2.1852 billion manats, expenses – 2,152,900,000 manats. A slight surplus was at 32.3 million manats. The average pension now stands at 195.6 manats, and the basic pension is only 100 manats.

At this point for mandatory social insurance there are deducted 22% from the salary fund and 3% deducted from the employee's salary. Half of the amount of these payments is accumulated in individual accounts. But as a result of the pension reform individual accounts will accumulate the entire amount of deductions, which will lead to a wise use of savings.

Azerbaijan has created a system of individual registration of the working population in order to control the accumulation of pension savings in 2006.

In November 2014 Azerbaijan President Ilham Aliyev approved the "concept of the reform of the pension system in Azerbaijan for 2014-2020" in order to improve the current model in Azerbaijan pension taking into account the progressive experience in the international practice. -0-