Azerbaijan's pension system can face serious problems
Azerbaijan's pension system can face a lack of financing in the future, Elman Mehdiyev, head of the State Social Protection Fund of Azerbaijan told reporters.
He made the remarks during the regional seminar of the International Actuarial Association in Baku.
"The studies show that although Azerbaijan's pension and insurance system stands out with its financial sustainability, we can face serious financial problems, if we don't deepen the insurance principles in the future," he said.
Mehdiyev noted that Azerbaijan's pension and insurance system has a lot of expenditures which are not related to the compulsory state social insurance at all.
Currently, a certain part of paid and newly granted pensions are made from the amounts which were formed during the period till the application of legislation in the sphere of social insurance in independent Azerbaijan - till Jan.1, 1992 - as well as from the pension allowances not related to the payments of the mandatory state social insurance, he added.
"We shouldn't forget that the citizens who pay premiums for compulsory social insurance, will come for their pensions after a certain time," said Mehdiyev.
"However, alongside with the transfers from the state budget, we use these funds for the pension coverage of the population, for example, paying pensions granted to some welfare beneficiaries before 1992," he added.
"Although such expenditures have nothing to do with the social insurance, we finance all this with the funds collected from the payments for compulsory social insurance," said Mehdiyev.
If this trend continues, Azerbaijan's pension system can face a certain lack of funds, according to the head of the State Social Protection Fund.
"On the other hand, the pension and insurance system has problems itself," he said. "The insurance charges of the citizens, who pay large amount of premiums, are used for providing the citizens who pay premiums in a smaller amount."
Only 50 percent of insurance charges are registered in the individual accounts, while the remaining part is used for providing the citizens who pay premiums in smaller amounts, said Mehdiyev.
As a result, the citizens who make large amount of payments for social insurance become less interested in legalization of their salaries and timely payment of premiums, he added.