Franklin Club: Mandatory Pension System

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Mandatory Pension System

Jun 14, 2022 news Giorgi Gvaramadze

In the 3rd quarter of 2018, the Georgian government implemented a pension system, 2+2+2 principle where employed Georgian citizens would be forced to give up 2% of their monthy salary to the pension foundation to be accumulated alongside additional 4% which would be shared equally (in some cases) by the government and employer. State officials said that this is a shared social responsibility to ensure a future where Georgians will have a dignified and honorable retirement but also creating long-term recources which could be used to boost the economy along the way.  

In this article I will try to explain why this mandatory pension system is a carefully devised scheme for the government and big businesses like the banks to generate additional funds to expand their capabilities and financial resources, whilst having zero responsibility and no risk of repercussions in the future. 

I will start by adressing the 2017 argument and statement, of Levan Kalandadze, the acting secretary of the business ombudsman at the time which shows exactly how the leading party is making empty promises of a wealthy future without even considering our recent history: “There is no pension system in Georgia and that’s why retired citizens have their hands out to the government to provide livelihood in form of pensions, which are actually social benefits.” This shows that the government views their own people unworthy of those pensions, as if they didn’t used to work; and the reluctance to the past since these exact same people lived through the collapse of the Soviet Union, declaration of independence and later civil war which led to the destruction of the Georgian state, all in matter of 3 years, practically leaving no chance for a pension system to exist in the first place. Considering all these facts, promising a retirement pay-out system in 30-40 years is beyond absurd even if you just consider the inflation rate, amongst many other major risks which I will cover in this article. 

There are many uncertainties regarding this pension foundation, but the root of the whole problem comes from the fact, that the people who are in power have decided that the state can manage our money better then us. This is the core principle in which I disagree. In my opionion a person is better at managing his own assets to secure a happy retirement since the interest is greater and thus rate of success is higher. Since this was masked as an ingeniouse plan to secure an honorable retirement for Georgian citizens, which was carefully constructed by combining the most successful pension systems around the world, there was not much protest among the people. State officials, analysts and other economists talked about the numerous benefits, securities and wealth this would create for the people but in reality, all that money, all that wealth would go to the accounts, stocks and project funding for some big commercial banks and other businnesses and to the government itself. 

The funds that the foundation would generate would be put in a low-risk portfolio, and by law, in the first 5 years only 20% of the total funds can be allocated in foreign accounts, which means that 80% will be invested domestically. ¾ of those funds can be stored in commercial bank deposits, 20% can be used to invest in business equties and the government can use 100% of those funds as domestic debt. In 2022 domestic debt is more then 2 billion and this is the reason why the government is trying to create additional source of income since they can’t increase income tax without having a referendum.  

Mandatory pension foundation will be managed by a pension agency, regulated by the national bank. 

The pension agency will have an investment committee, chosen by the parliament of Georgia and this committee, will be responsible to invest the generated funds over time, in meaningful projects, business opportunities, promote stock exchange, increase investements and in the future, return it in form of pensions not all at once, but gradually, over time. This already sounds very shady, but to spice things up, the leading party decided to gather all these funds in the extremely unstable national currency.

In conclusion, the government basically told the Georgian people that it will take 2% of their salary every month and use these as they wish. In 30-40 years, most of these politicians won’t even be alive, so there is no risk for them. This pension system is an additional financial burden on regular citizens, there is no such thing as “long money” and the government will never care more for the well-being of its citizens, more then the citizens themselves. 

|This essay may not be the official postition of the Franklin Club, An essay is written within the Franklin Club's project Franklin freedom defenders.|