HAPPY OLD AGE

Owing to reforms carried out in the last two years, Azerbaijan's pension system is becoming closer to international standards. We are not talking about the size of pensions as they are too far from international standards yet. We are talking about the structure of accumulating and paying pensions. The new law "On labour pensions" adopted last year has brought a lot of innovations into this sphere, and most importantly, it eliminated the situation in which everyone was treated equally and given the same pension.

The last change in this direction will be made by the end of this year - the pensions of citizens who retired before 1 January 2006 will be recalculated at last. According to a decision made by the country's president, social injustice against the category of the population whose pensions are calculated on the basis of a maximum salary of 51 manats will be eliminated. The most important thing here is that in order to have their pensions recalculated, these people will not have to submit more papers, because all information about their salaries has been gathered and is kept at the archive of the fund. According to its director, Salim Muslimov, this will help eliminate all speculation and corruption in the process of recalculating pensions.

The most important thing is the salary

As we said above, one of the advantages of the new pension system in Azerbaijan is that pensions are not "appointed", but "calculated". This means that the main component here is the salary and the growth in the size of the pension directly depends on the size of the salary.

Nowadays, one of the priorities of Azerbaijan's social policy is to bring up minimum salaries and pensions to the same level as the minimum subsistence level. Although it was planned that this would happen in 2008, against the background of inflation in the country, experts tend to think that it will not be possible to achieve this goal before 2010.

Meanwhile, the chairman of the parliamentary commission on social policy, Hadi Racabli, said that the minimum subsistence level will be growing in line with prices on the market, and therefore, we can expect minimum salaries and pensions to increase next year. 

It is believed that the minimum subsistence level in 2008 will total 80-90 manats, while minimum salaries and pensions might increase to 70 manats. It must be noted that the average labour pension in Azerbaijan totaled 65.7 manants by early October. 

Meanwhile, the average pension in Azerbaijan is growing at a faster pace than the average salary. For example, if in 2000-2007 the size of the average monthly salary increased by almost 3.1 times, while the average monthly pension in the same period increased by more than four times. Thus, if in 2000 the average salary was 45.1 manats (49.5 dollars), this year it is 170.7 manats (200.1 dollars) while labour pensions increased from 16.1 to 68.2 per cent. 

Experts are also inspired by the correlation between the average monthly salary and the average pension, which is 34.1 per cent in Azerbaijan. Even though it is not the best indicator among post-Soviet states, it is quite an acceptable figure for the Azerbaijani economy. For comparison, we should point out that in Armenia this indicator is 18.1 per cent, Belarus - 44.1 per cent, Georgia - 16.7 per cent, Kazakhstan - 27.2 per cent, Kyrgyzstan - 27.5 per cent, Latvia - 31.9 per cent, Lithuania - 29.8 per cent, Moldova - 29.1 per cent, Russia - 25.6 per cent, Tajikistan - 34.1 per cent, Estonia - 23.9 per cent and Ukraine - 40 per cent. The indicator in Ukraine is high because the Social Security Fund is getting fees not just from social insurance, but from alcoholic drinks, tobacco, car sale and so on. Moreover, much more money is transferred from the state budget into the State Fund in Ukraine than in Azerbaijan.

Save your pension from youth

This way or another, the future generations of pensioners are luckier than those who have already retired, because they will have a chance to form some part of their pension themselves. As we said above, apart from the basic part established by the state and the insurance formed from social insurance fees, accumulative pensions will be introduced in Azerbaijan by 2010. 

The State Social Security Fund (SSSF) will soon submit a draft state programme on the development of the insurance pension system in 2008-2013 to the Azerbaijani president for approval. The project provides for the introduction of a system of accumulative pension insurance, private pension funds and a number of other aspects.

According to the plan, the accumulative part of the pension will be kept as a deposit in banks for three years after 2010. Only after the expiry of this term, will the insurer have a chance to use this money as investment. He will be given a list of companies where he can invest the accumulative part of his pension. But the procedure and direction of these investments will be regulated by a separate law that will be adopted later. The insurer will be able to get his accumulative pension only when he reaches the retirement age. There may be some exceptions as well. For example, the insurer might take his money back if he changes his citizenship. If the insurer dies, his money will be handed over to his family.

However, not all citizens will be able to get accumulative pensions. Only people born after 1973 will be able to get them. The reason is that by 2010, a person born in 1973 will be 37 years old. According to the law, in order to get an accumulative pension, you need to have an insurance period of 25 years. Thus, a person born after 1973 will have an insurance period of at least 25 years when he retires at 62.

Incidentally, the SSSF hopes that the law "On private pension funds" (PPF) will be adopted in the near future. In the process of drawing up the law, experts studied the experience of such funds in other countries, for example, Russia. "Our closest neighbour - Russia - has professional pension funds as well. For example, the oil company Lukoil and Gazprom have such funds. But we decided that there will be no such professional funds in Azerbaijan," Muslimov told journalists. He added that the law provides for tough conditions for setting up private pension funds. For example, it is planned to set strict requirements regarding the capital, the head of the fund and the heads of the fund's financial services.

In order to set up private pension funds, it will be necessary to have capital equal to 5,000 basic parts of the pension. The head of the pension fund should have at least three years of experience in the sphere of finances and insurance and have legal or economic higher education. The chief accountant of the fund must have at least three years of experience in this sphere, as well as legal or economic higher education. Licences to private pension funds will be issued by the Azerbaijani Ministry of Finance.

At the same time, the fund also has a number of tactical aims. One of them is to ensure the financial stability and self-sufficiency of the social insurance system (regardless of the size of deductions from the state budget) and to involve all participants in the economic system in social insurance, which will help fight the shadow economy.

According to Muslimov, at least 10 years are required for the intensive activity of private pension funds so that they have a chance to accumulate pensions. "There is a problem of such institutions investing pensioners' money. I think that we have to develop our financial markets in order for pension funds to have a chance to invest money collected from pensioners," he stressed.