SECURE OLD AGE

Injustice - no matter in which sector it is found - is always a source of displeasure. And when injustice affects masses of people or, worse yet, an entire stratum of society, it becomes a social problem which must be addressed by the state.

One of these problems in Azerbaijan, which has haunted the republic practically since the day it regained independence, has been the issue of pension support. There are many causes of the problem - from the radical change of the very system of accumulation and payment of pensions to people who spent most of their careers during the Soviet era to bureaucratic procrastination and officials' mistakes in the process of granting pensions.

The state intervened in tackling the social problem long ago, carrying out different reforms step by step.  However, the amount of work that needed to be done to achieve the best-balanced version was so great that, although swathes of innovations have been introduced every year for the last 10 years to improve the system, problems still exist.

At the same time, it has to be said that the latest amendments to the law "On retirement pensions" aim to resolve the lion's share of deficiencies in this sphere. And most importantly, they aim to redress an injustice.

Total recalculation

Pensioners have been waiting for this reform for a long time. The injustice of the system which existed until recently was that payments to people who retired before 2006 were calculated using quite a convoluted formula which was based on the sum of the salaries which people were paid in the Soviet period, converted to manats by applying different coefficients and so on. The result was that people who retired in different years but had the same length of service and same salaries received different pensions. And many people who retired in in the 1990s were paid only the minimum pension although they had a work record of more than 30 years. According to the State Social Security Fund, for example, there are more than 900,000 people in Azerbaijan who retired before 2006, of whom 675,000 are paid the minimum pension of AZN 85.

Naturally, the already aged people were compelled to keep working to cover at least some of their needs from their salary in addition to their pension. Ultimately, besides dissatisfaction among the pensioners themselves, this situation also created a shortage of jobs for younger people, in other words, worsened the situation in the labour market.

Either the country's national budget increased to the extent that makes it possible to pay for the reform without damaging the economy, or the issue of creation of new jobs required immediate attention - whichever the case, this year the government started to talk about the need to redress the injustice towards people who retired before 2006.

Already in a concrete and categorical form, the issue of recalculation was raised at a cabinet meeting to review the social and economic development of Azerbaijan in the first quarter of 2011, when President Ilham Aliyev stated the need to improve this year the financial situation of the country's citizens who retired before 2006.

And the State Social Security Fund found a formula to resolve this problem that is so simple that it verges on genius.

So, according to the amendments to the law "On retirement pensions", which have been adopted by the Milli Maclis and approved by the president, pensions for people who retired before January 2006 (with the exception of those who receive additional benefits for a long working record under Article 20 of the law) will be recalculated with consideration taken of years of service.  As a result, the number of working years will be multiplied by 1.94 (and for an incomplete year, the number of months in the last working year will be factored in), and added to the base-level pension of AZN 85.  In other words, an "insured" part of the pension will be set, which will be recalculated again from 1 July 2011.  Incidentally, the multiplier of 1.94 was of course not a random number, it was calculated by averaging the changes in consumer prices from 2006 to 2010.

New changes will also influence people who retired after 1 January 2006 and before 1 January 2010.  So, the difference between the "old" and "new pensions" will be eliminated.

Everyone who is entitled to disability, retirement and loss-of-breadwinner pensions and mothers who receive a pension because of their large number of children will start getting bigger pensions.  As was stated, from 1 July, almost 845,000 people will start getting 40% larger pensions.

If the calculation of the new pension for individuals who retired before 1 January 2006 produces a great difference between the old and new amount, the higher amount will be used as a basis for the increase.  The main goal is increasing pensions that are low despite a long working record.

All the funds required for the transition to the new system of calculating pensions have already been allocated in the adjusted budget of the State Social Security Fund, Fund Chairman Salim Muslimov said, and from 1 July, the fund will start operating the new system. This will require AZN 390 million, of which AZN 195 million will be allocated in the second half of 2011.

"The new recalculation of the pensions requires a review of every pension file that was compiled before 1 January 2010.  This is an unprecedented effort in the history of the Azerbaijani pension system, and it requires a huge amount of technical work. Despite this, the fund intends to complete this work as soon as possible, and the automated management system of the fund will greatly help us accomplish this job," Salim Muslimov said.

Killing two birds with one stone

However, the new pension reform is quite important for the country from the point of view of honouring fundamental social commitments. The deputy head of the State Social Security Fund, Elman Mahdiyev, for example, said that the average monthly pension of people who retired before 2006 is AZN 102, of people who retired between 1 January 2006 and 1 January 2010 it is AZN 122, and that last year, the indicator increased to AZN 150.  "This is about $200, and if we transform this to the purchasing power parity figure, we will get the highest pension in the CIS," Mahdiyev said.

Overall, the national average pension will exceed the fund's commitment to pay 40% of the average monthly salary. "In other words, new rules will make it possible to put an end to the payment of the minimum pension. The difference between the minimum pension and what an actual pensioner is paid will depend on the length of the pensioner's working career," Mahdiyev noted.

Will the reforms address the problems in the labour market?  Of course, to some extent they will improve youth employment. For example, the pensioners who until now worked only to increase their revenue, will not have to work after their pension increase.

However, for many pensioners, whether or not they should work after retirement is no longer at their sole discretion.  In parallel with pension reforms, the Milli Maclis of Azerbaijan also made changes to the Labour Code which now sets the upper age limit of 65 years for individuals who work in departments that are funded by the state budget. An exception is made only for the staff of scientific research institutions and university teachers.

To use a popular saying, the government killed two birds with one stone:  it restored justice in the pension system and paved the way to resolve the problem of youth unemployment. Whether or not the new system will be an adequate replacement for the pensioners who will now be dismissed from their jobs is a different matter.

For now, the pensioners await the results of the recalculation of their pensions and send their questions to the district branches of the Social Security Fund. They hope that this time around, they will not be hurt and the promised pension rise will be added without any bureaucratic delays and extensive paperwork. After all, they have earned that money by working hard for many years in the name of the prosperity of the country and by waiting for justice for a long time.