WHAT PENSIONS WILL WE HAVE?

KETI MIKELADZE

Matthew soothes us saying “Take therefore no thought for the morrow; for the morrow shall take thought for the things of itself”, but still we give thought for the morrow and for pension age that some expect to come either 10 or 30 years later.

They have lately settled down on all stages of social hierarchy making everyday money. As for savings for foreseen and unforeseen cases, the matter is not so smooth here, which is, mainly, stipulated by two things: low legal and illegal incomes and in general, distrust towards insurance… surprising as it may seem, but some part of population is thinking of saving up money for insuring pension age. The final purpose is ensuring endurable, rather than well-provided pension age. Citizens are not interested in percentages and formulas, but data about the amount of future pensions are noteworthy. In the beginning of the century 1% fell at the share of 10 employees, subsequently at the share of 3 employees and at the share of 1 employee in the 90s. Nowadays, 0,8 employee keeps one pensioner. This proportion reveals problems in social sphere.
The year 2003 is considered the year of transition to the social sphere of insurance system. Bills on “Compulsory social insurance”, “Compulsory insurance pensions” and “Introduction of individual accounts into the system of compulsory social insurance” developed by the foundations of social insurance and ministries of labour, healthcare and social protection will take effect in 2004. In 1 January 2003 the Single State Foundation of Social Security and the Single State Foundation of Medical Insurance united and Single State Foundation of social Insurance was formed.
How will the social reform develop? What will it change for the better? How will the population get involved in the reform? This, certainly, depends on many circumstances. In any case, heads of transformed foundation feel optimistic and lay hopes for the new structures and plans. Already in autumn 2002 Amiran Gamkrelidze, minister of labour, healthcare and social insurance, said in the government session that there were no state trends in the social sphere, that the new bill should enable the country to transit to insurance principle and that solidarity of generations, economic branches and regions should grow. The objectives are attractive, but it is known what kind of “reputation” the term “insurance” has had since the USSR period. This attitude has not changed ever after; in the country that has undergone cataclysms since the 20th century distrust of people towards insurance does not seem so surprising: revolution, total expropriation, repression, world war, perestroika, bankruptcy of banks, change of banknote, inflation… are sufficient reasons for making the insured feel insecure. Although pension age was not insured in the USSR, each citizen made savings for the so-called “rainy day” that, in fact, helped them to insure disability, illnesses, etc. These savings were great. Many people had hundreds, thousands of roubles on account. Not only potential pensioners, but also their family members lay hopes for the money. According to the indices of the 90s, these saving turned into a small amount of laris destroying hope as well as trust towards insurance and banks.
The following trend was observed in the 80s: engineer-technical personnel of factories became workers as the salary of highly qualified workers was by 30-50 laris more than that of engineer’s. Pension was calculated out of the last two years’ salary. Engineers who received a salary of 150 laris did not hesitate to put on “boilersuit” in order to receive larger pensions. These are germs of insurance principles implying that people with higher salaries work more and get higher pensions whereas people with smaller salaries have less.
Many employees did not try to save money for pension age thinking that 13% was deducted from their salaries for pensions. Asmat Dzebisashvili, head of Social Insurance Foundation, said “paid interests” were not meant for pension. This was people’s mistake. The tax was meant for covering the cost of leave, maternity leave, sickness period, etc. State departments received pension sums from Moscow. The problem was caused by some other thing. There were more pensioners before. The state granted benefits to most of them (miners, workers in chemical industry); f.e. 48 days’ leave in many enterprises , retirement age 10 years earlier, i.e. the number of “young” pensioners increased, too. Therefore, employees of other branches had to keep privileged pension age at their own expense. Many representatives of Moscow agencies decided to change the situation. A reverse process was to take place in the 80s: gradually abolished benefits and equal pension age. The West resorted to the same measures. When industry is harmful, state of ecology is developed and scientific-technical achievements are planned dynamically in various branches. Thus, employees of harmful and non-harmful industries become equal by means of the above-mentioned specific mechanisms… everything went topsyturvy in the USSR instead of the changes. Everyone thought about survival rather than technical progress. You remember, pensions consisted of costs of energy, bread and other compensations. There were 8 laris’ pensions”.
The “survived” still can not put up with the idea that the employed and unemployed have one and the same pension. They continuously repeat this “symbolic” difference to accentuate their merits. Thus, inequality of sums gave rise to disagreements between these two categories being a reason of constant rebukes and conflicts. As there is no pension law in our country, the old USSR law (1990) and the labour code are applied. The amount of present pensions – 14, 18, 40 and 45 – for different categories is determined by the law on “State budget” and President’s order of 1998 N469. As for lower pensions before the order, there were no budget resources for most of them. This was caused by many circulars sent to ministries. For instance, under N891 of 1992 property assessment of enterprises was performed: if something cost 100 roubles before, now it costs 1000. Price of all raw materials in warehouses rose, which put realisation of finished goods into question. True, this is a rough estimation, but this also served to increase cost prices and decrease production and circulation funds. After the privatisation, industries did not manage to recover themselves. Salaries were restraint. Social allocations from many years’ restraint salaries were not issued, which led to the ” pensions freeze”.
In 2002, three million laris were assigned for covering pension indebtedness.
In 30 January a press conference was held in the Social Insurance Foundation where Irakli Koplatadze, general director of the foundation, spoke about tasks and last year results of the reformed foundation. According to the new bill on compulsory social insurance, single 30% tax will provide employees with the following guarantees: insurance of risks, age, disability, unemployment, pregnancy, child-birth, rehabilitation, illness and death. As for the existing two months’ pension indebtedness, this problem “haunted” the foundation through the whole of 2002. Despite this, the indebtedness continued to exist in 2003. There was 29 millions’ shortage in pensions for retirees of law enforcement structures. For instance, instead of 25 million laris to be received in January 2003, only 7,5 millions were received in reality. There were similar problems in previous years, too. 14,4 millions are envisaged by the budget this year. Besides, under the project, inter-inclusion of land taxes and pension indebtedness should be performed within 30-40 million laris. According to the third law of the foundation on personified registration, each citizen of Georgia will be provided with personal identification number and social security card. Diversified pensions will be issued in accordance with work experience and salary amount. Employees will be registered in the first stage of personification and the rest will be registered in 2004. The foundation intends to bring registration of self-employed population in due order with the help of passport agencies. Data about employers and employees will be obtained through the co-operation with tax inspection departments.
Financing of insurance payoffs should gradually become independent of the budget. It should be based on insurance premiums. Pension charges will be financed by the central budget before the enforcement of the bill.
We should make distinctions between insurance and state liabilities. Wrong distinction is no problem, the problem is the decreased number of population employed in budget sector. This would not be a negative factor provided the number of legally employed population in private sector grows. True, there are very low salaries in the budget sector, but still social taxes are kept back from employees’ salaries. No one can describe what is going on in the private sector. According to clause 19 of the labour code, a firm (joint stock company, limited liabilities company) must conclude a contract with an employee. Private interviews reveal that the number of contracts or legal employees is small. Administration of the firm introduces employees as their friends or relatives. The labour administration of the Statistic Department gave us a table on employment in 1990-2001 (there are no data for 1991-1997, See the table).
The research-based table does not show the exact number of legally employed population. For most people it is important to make earnings without taking any interests in whether the firm would pay for social insurance from salaries. Nor employers of private sector show any willingness to pay. Then they will have to pay employees more so that the after-tax sum would suit an employee. Most small private firms do not find it easy to pay much, though the problem is more or less settled in larger firms. For instance, there is no such problem in pharmaceutical company PSP. Collaborators of the firm have workbooks. Compared with other employees, they feel socially secured. There is the same situation in other branches, too. Much depends on specifics, quality of branches, etc. We should mention that employees of private sectors treat this issue with deep understanding. They think it is embarrassing for them to speak about this. They say that they are thankful for being employed at all. 33% salary deduction is viewed sceptically because of the present problems with 27% salary deduction.
According to the law on compulsory insurance, pension is given to citizens who have minimum 15 years’ work experience (or to those who paid social taxes during the period). Pension age for men and women is 65 though next year pension age of women will increase by half a year. This process will start in 2004. It is supposed to end in 2013. The amount of pensions is determined by the total sum of base and insurance part. In short, the higher will be the salary and the greater will be work experience and therefore, paid fees, the greater will be the amount of pension.
Insurer (public or private sector) should pay 31% per employee while the insured should pay 2%. The tariff of compulsory insurance is 28%. As for the self-employed, this category should pay 18% from average income with 14% being meant for pension insurance. If premiums for each employee will really go to single insurance fund, problem of pension regulation will be solved.
Apart from compulsory insurance, there is also voluntary insurance of pension age. What can we say about simple citizens with the “elite category” of potential pensioners – Parliament members – refraining from voluntary pension insurance. According to the law of 1999 on compulsory insurance of health and life of Parliament members, insurer (the Parliament) has the right to choose an insurance organisation. The insurance company was chosen. The company is called GPI. As company lawyer Levan Gurgenidze explains, the minimal premium of voluntary pension insurance should not be less than 10% salary deduction. As we came to know, Parliament members have not yet insured themselves. The law gives them the chance of peaceful old age. Under chapter 3, clause 12, a person who has been a Parliament member for no less than six months and if his authority has not expired before a specified date as well as a person who became disabled during his work in the Parliament has the right for Parliament pension. The Parliament pension depends on the amount of Parliament member’s salary. According to clause 17, family members of deputies have nothing to worry about: in case of Parliament members’ death, under-aged and disabled members of deceased deputies have the right for the pension. Warrant are, undoubtedly, obvious. The law takes care for family members, too.
Pensions of Parliament members are paid from the budget. The subject of Parliament member’s pension will become a cause of rebukes and discontent of simple pensioners. “Can family members receive pensions of simple pensioners after their death?” This half-humorous question has no answer.
The major part of population consists of the self-employed. They would hardly save up even a small amount of money from the “hardly and bitterly” earned money. They hope to do so after incomes double. If in 2003 the Parliament passes the bill on individual accounts, everyone (employers and employees) should inform the Social Insurance Foundation on work periods, addresses, sex, passport data, etc. As soon as there is an insurance case, insurance payoffs will be calculated on the basis of this information. Besides, if the supplied information meets the requirements of the Foundation, the latter will issue a social insurance card to citizens. This means that an account with an individual number will be opened for the citizen. Inertia of distrust should not spread on social insurance funds. Distrust of population towards insurance is also testified by the content of private persons’ newspaper statements about lending and borrowing of money. The terms and conditions are similar to those of banks: car, flats and gold guarantees. Moreover, many funds undertake payment of greater interests (6%) for bank credits (1.5-2%) with guarantees and legal documents. One of the authors of such statements says: “We do not trust banks. It is better to deal with private persons”. People have particular sums of money that do not go to insurance accounts. It is in no one’s interests.
True, lawyer of GPI and representatives of credit departments of Tbiluniversalbank assure us that years of panic and distrust have already passed while trust towards insurance and bank system gradually increased, but still this has not acquired a common nature. Introduction of insurance principles will take time.