The law "On labor pensions" does not fit the reality of the shadow economy

In June 2018, as a result of the entry into force of amendments to the Law on Labor Pension, the retirement age was raised in Azerbaijan. Economist Rovshan Agayev analyzes the five-month results of the new pension law. In 1990 the number of retired by age was 8.8% of the total population, in 2000 - 9.2%, in 2010 - 9.5%, and in 2018 it decreased to 7.9%. The last figure is the lowest in 30 years, the economist stresses.

The last figure for Azerbaijan contradicts the corresponding data in developed countries, where 20% of the population receives an old-age pension from the state. In Azerbaijan by three times less. The government has developed a very favorable financial situation, when a small number of pensioners and a low average level of pensions lead to general pension expenditures at the level of 5-6% of GDP. In developed countries, this figure is equal to 10-15% of GDP, indicated Agayev.

The danger for Azerbaijan is that in the vast shadow economy it is possible that only one legal worker can transfer an insurance pension to the account of one pensioner. In developed countries, 3-4 people pay insurance to one pensioner. At the same time, even legally working people in Azerbaijan hide most of their earnings from the state. That is, our one legal worker transfers less funds to the Pension Fund than he should.

Rovshan Agayev is against reducing the retirement age to 45-55 years, as some have suggested. But legalized retirement age should be fair and strictly justified from the point of view of demography. The new 65-year-old for men and the 63-year-old for women retirement age are clearly overstated. The expert believes that by 2025 the retirement age should be 63 and 60 years old, respectively, and after 2025, if the average age of life rises to 75 years, it is possible to raise the retirement age to 65 and respectively to 63 years.

Justifying the changes in the law, government experts explained that it is necessary to lower the retirement age, since the existing rules are outdated. The average life expectancy in the country is growing, and now is 72 years. There are elder people and less able-bodied citizens. Experts consider it normal, when there are three employees per one pensioner, and in Azerbaijan, at the time of making changes, the ratio is one to one.

In the new pension legislation old-age benefit consists of shares. Funds for the payment of the basic pension, almost $ 70, come from the state budget. The cumulative part is paid from the individual account in the State Fund. "The most important thing is to save up to $ 9,000 in insurance experience. And if the money is not accumulated, the department where the person or his close relatives work can pay the required amount," explained the head of the department of the State Social Protection Fund Eyvaz Ismailov. If nobody pays for a pensioner in the insurance fund and the experience is not enough, he is obliged to work until the experience reaches 25 years. Early leaving for the deserved rest is not provided in the republic.

In Russia, the retirement age will increase from 2019. Women from 55 to 60 years old, and men from 60 to 65 years old. The retirement age will increase gradually, on average by six months each year.

The pension system in the US is a multicomponent one. The pension consists of the one paid by the state, as well as the funded part. Cumulative part consists of what the company-employer pays (the so-called 401K), if it is a civil servant - from government funds, and also from the savings of the pensioner, accumulated on his account or invested in securities and manage funds. Both of these items are not tax deductible. Additional benefits get the military, who have a separate fund. So there are cases when a pensioner receives three pensions. The retirement age in the US is 67 years old. One can retire at 62 years old, but then the social pension will be only 70-80% of the accrued monthly payments - depending on age and place of work. Such a late retirement age in the United States is due to a constant increase in life expectancy, which was observed until 2016 - 78.6 years.