The Challenge of Pension Reform in Georgia: Non-Contributory Pensions and Elderly Poverty

WP#2015-18

Abstract

Georgia, a country characterized by an aging population with a high incidence of poverty and limited public financial resources, offers virtually complete non-contributory basic pension coverage. The basic pension has, to date, proved effective in dealing with poverty arising from political instability, military conflicts, economic deterioration, transition to a market economy, emigration of its younger population, and aging. But Georgia’s fiscal constraints and aging population also highlight the importance of developing and improving the pension system, in order to ensure its sustainability.

Since 2012 the Georgian government has put forth a systemic reform proposal – a compulsory pension insurance – including the implementation of contributory pension schemes to supplement the basic non-contributory pension. While the proposal is a promising start, it alone would not be enough to ensure that the government’s fiscal burden remains reasonable, while maintaining the basic pension system’s long-term adequacy and flexibility to adapt to the evolving demographic environment. This paper presents policy reform choices, which suggest that, in Georgia, pension reform might also include increasing statutory retirement ages and reducing the generosity of benefits through means testing. These policy reform options would involve difficult tradeoffs, which are also described in this paper.

Although the paper focuses on the Georgian non-contributory basic pension, its poverty reduction effect and policy reform options, the case of the Georgian non-contributory basic pension might hold value for some low- and middle-income countries that are considering implementation or expanding coverage of non-contributory pensions.