PENSION PIGGY BANK

The most important area of social policy for members of the public is reform of the pension system which has affected several generations for some time. Demographic changes make us search for new approaches to solving the problem of providing material support for old people, the disabled and those who have lost their bread-winner.

Compared with the past 10 years, a period in which the process of reforming the pension system in Azerbaijan has been ongoing, many things are different today. We must note, for example, the development of an automated pension payroll system, the full transition to the payment of pensions by bank cards through ATMs and the completion of a logistics and software base to adopt a personalized system of social insurance. The main objective of the reforms is to help Azerbaijani pensioners themselves to understand the pension that is their due and to calculate their retirement income without their right to a fair calculation by a social worker being affected.

Three steps to a happy old age

Initially, the pension systems in different countries pursued one of two purposes: either to compensate for lost earnings, or to prevent widespread poverty among the elderly. The evolution of legislation in developed economies indicates the convergence of these two objectives. Most countries do not place the responsibility for poverty reduction among the elderly entirely onto the social assistance system. While solving this problem within the framework of the pension system, some principles of insurance are also observed.

A transition to a multi-level pension system is inevitable for the state to fulfil its obligations to current and future retirees, increase pensions and to improve citizens' personal interest and confidence in their retirement.

As is know, the new pension insurance system for which Azerbaijan strives, consists of three stages. The first includes mandatory pension insurance by the state, the second is part of a system of mandatory pension insurance involving real investments, which means the investment of some social insurance premiums in bank accounts and their placement in a variety of financial instruments, with a rise in pensions resulting from the profit accrued.

We should state a reservation at the outset that in this case, of course, the problem of ensuring the stability of the investment process within the system of accumulation arises; this is currently one of the objects of scrutiny by the State Social Protection Fund. The fact is that the government wants to ensure that the accumulation system is closer to the stability of the distribution system. Also, in order to implement the second phase, it is planned to increase the volume of mandatory contributions. At the same time, it is possible to increase the contribution rates for compulsory social insurance or to use separate rates for insurance savings. The State Social Protection Fund (SSPF) calculates that the total rate of deductions for compulsory social insurance in this case should not be less than 35 per cent. According to the State Fund, most of the deduction for compulsory social insurance should come from employees' salaries.

And finally, the third stage involves the creation of the private pension funds that have already been operated successfully in Germany and other European countries, although they are associated with a greater degree of risk. Thus, during the economic crisis, losses in the third stage of this system in Germany amounted to 40 per cent. Neighbouring countries, for example Kazakhstan, where the state pension fund was liquidated a decade ago and 15-16 private funds were created, have also carried out very radical reforms in this direction. During the crisis, they lost half a billion dollars, four funds were on the verge of bankruptcy and only state support saved them.

Thus, on the one hand, the lack of such instruments in Azerbaijan meant that the country escaped such losses, but on the other hand - the receipt of pensions from three different sources could lead to an increase in total pension income.

In any case, it is planned to develop an appropriate legislative framework for the creation of private pension funds in the country for 2012-2013. The introduction of the first elements, as well as the preparation of a legal framework for accumulated pensions, is planned for 2014-2015. According to the plans that have been announced, by bringing national legislation into line with European standards, the State Fund is ready to give the public the opportunity to place their surplus funds in the SSPF as a payment into their accounts, on which interest will accrue. Upon retirement, they will be able to receive a portion of funds from the savings account, in addition to their basic pension.

Transparent calculation

As can be seen, a pension-insurance system based on insurance relations in Azerbaijan expands the role of compulsory state social insurance in assuring social security. The sustainable development of the existing system is directly dependent on the relationship between mandatory government fees and social insurance payments.

The state programme for the development of the pension-insurance system for 2009-2015 also indicates that after a while, the insurance payments collected, the legalization of wages and increasing the number of those registered in the individual registration system, will create the conditions for ending transfers from the state budget. There will be no need to specify the basic pension, although in some ways it can be preserved, since it is automatic. However, over time, this minimum should lose its significance, as everyone should know how much they have paid in social benefits, how much money has accumulated in their individual accounts, as well as the size of its indexed element. In the future, according to the State Fund's plans, information on every insured person will be posted on the official website of the State Fund, and at the end of the year, they will receive written notification of the amount accumulated in the account.

Complete transition to an automated system of calculating pensions should be implemented by 2013, although under the state programme, this process could drag on until 2015. The main task today is to collect the relevant information (in particular, data about where people worked before 2006, 170 manats for each year of service), which is expected to be completed before the end of this year, and to place it in the appropriate SSPF information base to calculate the amount of pension capital.

In 2011, it became possible to calculate the pension via the official website of the SSPF www.sspf.gov.az. To do this, it is enough to enter into the appropriate section of the website information on seniority and wages since 2006.

Thus, every insured person will be able to calculate the size of his future pension and regularly monitor the process. This system is used throughout the world and in our country it is planned to post information on each insured person, indicating the amount of savings before and after 2006.

As a result, upon reaching retirement age, a citizen will be able to send data about himself to the fund via the Internet and, after checking it, the pension will be calculated automatically. In addition, on the Internet people will be able to enter the code on their social insurance cards and find out how much is in their account.

It is important to note that the purpose of the pension reform is not to create a stock market and ensure high economic growth rates through the use of private pension funds to finance public projects, including through the placement of funds in government bonds. The ongoing reforms will increase personal responsibility for ensuring a high level of social security in old age. The transfer to the savings system of individual retirement accounts will create real conditions for a shift in the focus of social policy from state support to support for families and public organizations and create an active system of incentives for individual accumulation and savings.