Will amendments to Law "On Labor Pensions" protect pensioners from impoverishment

Baku/04.10.22/Turan: By the decree of the President of Azerbaijan dated February 8, 2022, proposals on the mechanism for indexing pensions of labor pensioners (civil servants, persons of military and special ranks, etc.) receiving a superannuation) will be submitted for discussion by the Milli Majlis.

According to the draft amendments to the Law "On Labor Pensions" prepared by the Ministry of Labor and Social Security of the Population, from January 1, 2023, a mechanism for indexing and increasing all types of pensions will be introduced. That is, the unified indexing.

Government agencies hope that in this way there will be an increase in pensions. However, according to some experts, even after the indexation, the size of pensions will out of keeping with the current rise in prices.

Turan was told in the Ministry of Labor and Social Security of the Population, the amendments to the law are another measure to support the welfare of pensioners. "After the inclusion in their pensions of 10% paid monthly to persons receiving a pension on special conditions, as well as 200 manats of material assistance paid to other pensioners during the year, the final amounts of pensions will be indexed in accordance with the annual growth rate of the average monthly wage. For example, a pensioner who receives a pension of 400 manats and financial assistance of 200 manats during the year will receive an increase of 416.7 manats by the New Year (400+200/12), plus a percentage of indexation."

A serviceman receiving a pension on special conditions, for example 700 manats and 10% material assistance in the amount of 770 manats, will also receive interest on indexation.

The Ministry emphasized that the introduction of a single indexation mechanism will contribute to the sustainable growth of pensions for persons retiring on special conditions.

"Over the past 10 years, the vast majority of people in this category have increased their pensions by a maximum of 70%. Pensions of persons retiring on a general basis rose by 98% over the same period as a result of indexation."

The indexation and increase of pensions is carried out electronically. "Raising pensions by this method on special conditions will also make it easier to administer the relevant structures in this area, eliminate the obligation to provide any information about salary increases," the same source said.

After the adoption of the draft, the pensions of people receiving care benefits will increase to a greater extent as compared to the current mechanism. "Indexation will also apply to all amounts of pensions - both for the care allowance and the insurance part. If earlier the amount of pensions was indexed every 3-5 years, now every year in a single order - indexation and increase of pensions to civil servants, military personnel and other persons from this category, if they worked or quit their jobs within 6 years after the pension was awarded. The total amount of their pensions will be recalculated and raised based on the capital they have accumulated."

Besides, there will be no need to provide mandatory information on salary increases to pensioners by the institutions in which they work. It will also be ensured that all pensions are indexed completely electronically.

The Ministry noted that this project does not apply to persons retiring with special circumstances and conditions.

Rufat Guliyev, a member of the Milli Majlis Committee on Economic Policy, Industry and Entrepreneurship, told Turan that measures are being taken to improve the conditions for assigning pensions, raising them and paying them. "Besides, the issue of pensions is being unified. We have such categories of people who received various benefits in addition to their basic salary before retirement. This mainly concerns military personnel, police officers, and civil servants. Now all these benefits will be included in the salary, and pensions will be calculated on the basis of these general figures."

The member of the committee noted that the salary increase will also be taken into account. "Thus, it will be easier to index pensions."

Economist Rashad Hasanov said that today, within the framework of the existing rules, general labor pensions are indexed. "There is a link between an increase in the retirement age for those who retire on special conditions, and an increase in the average monthly salary in this sector. 

That is, if, according to the current legislation, persons belonging to this category have retired and do not work, and wages increase after 2-3 years in the field in which they worked, then taking into account these increases, the pension amount is recalculated again. And pensions of persons of other categories are indexed once a year in accordance with the growth rate of the average monthly salary."

According to the expert, after the changes, the pension of persons retiring on special conditions will be indexed once a year, like the pensions of persons receiving them on general conditions. "Instead, pension accruals linked to salary growth are being stopped."

He noted that the indexing mechanism is more often used in world practice. The very philosophy of indexation is to prevent the risk of impoverishment of pensioners, and therefore this indexation is usually linked to the level of inflation. 

But this is not the case with us. After amendments to the law were made in 2017, this is done not in accordance with inflation, but in accordance with the growth rate of average monthly wages."

According to the economist, if you look at the official figures reflecting the growth rate of inflation in 2022, these figures are lower than the growth rate of average monthly wages. 

"This also means that pensions can grow by 1-2 percent more than the inflation rate. For example, according to official data, inflation is 13 percent, and the average wage has officially increased by 14.1 percent. However, in fact, there are grounds to believe that inflation exceeds 30 percent. If we look at the issue from this aspect, then indexing will not protect pensioners from impoverishment."-0-