Amendments to law on labor pensions in interests of pensioners

Increased attention to the pension provision in Azerbaijan is today testified by the additions and changes to the Law on Labor Pensions adopted by the Parliament of Azerbaijan.  Changes to the legislation require increasing the retirement age, number of children to obtain the status of large families, increasing insurance pension experience and pension indexation.

According to the amendments and additions to Article 7 of the Law, the age limit for men will rise by six months each year from 1 January 2010 to 1 January 2012, women - from 1 January 2010 to 1 January 2016, thus, being determined at around 63 and 60 years respectively. According to the law, the right to labor pension is given to men aged 62 years and women aged 57 years, if they have 12 years length of service (excluding those for whom pension was appointed before the law came into force).

The terms will also be changed for retirement and the level of benefits for mothers of large families, parents with children with disabilities, single fathers, as well as retirement for disability.

The retirement age of women who brought up a child with disabilities up to eight years of age, and mothers with five or more children, with a minimum of 10 years of work experience, was reduced by 5 years.

It needs to recognize that these changes have caused a lot of criticism against lawmakers. However, from an economic point of view, amendments to the Law on Labor Pensions were fully justified economically and in the future will improve the situation in the sphere of social protection of population, lead to the restoration of social justice, end disagreement amongst different social groups and increase of pensions in Azerbaijan.

In Azerbaijan, several reasons forced to reconsider the retirement age. First, because of today's aging of population in Azerbaijan, as in many other countries, as well as decline in the birthrates in the world, which inevitably leads to the absolute and relative reduction in the number of young people and increase in the share of older people, especially significant change in the average length of life. In Azerbaijan, the average lifetime is 72.4 years.

Also, it should be noted that Azerbaijan still introduces one of the lowest retirement age compared with countries worldwide, except Bulgaria, where the retirement age for women is 52 years. For comparison, in Norway and Iceland - 67 years, in Germany, Ireland, Spain, Canada, Portugal, USA, Finland, Sweden, Japan - 65, Switzerland - 63, Austria, Great Britain, Greece, Italy, France - 60 years .

Retirement age in various countries

Women

Men

Kazakhstan

58

63

Georgia

60

65

Estonia (gradual increase)

63

63

Poland

60

65

Czech Republic (gradual increase)

57-60

62

Hungary

62

62

Great Britain

60

65

EU countries

65

65

Norway

67

67

USA

65

65

Canada

65

65

Japan

70

70

Source: World Bank

In addition, the changes will prevent incorrect counting of pension that will provide greater transparency of the system as a whole. Thus, the main problems are connected with the methodology of calculation of pensions for the period until 2006. At present, this method is based on the data inquiries about salary for 2004-2005. Each year, citizens find it increasingly difficult to obtain such information. In addition, as a result of the current methods of calculating, retirees with more years of experience earn less than retirees with less experience.

Upon the new amendments, for the period until January 1, 2006, 170 manat will be counted for each year of working experience. The new system will allow each insured (person who has not yet retired) to monitor his/her initial pension capital. As a result, the new pension system will be appointed in an automated manner in accordance with the European standards. Thus, upon reaching retirement age, a citizen will be able to send information about him/herself to the Fund through the Internet, and after checking the data the pension will be calculated automatically. In addition, through the Internet, entering the code of their card on social insurance, the population will be able to now the amount in the account.

In addition, there are other advantages of the new rules: for example, under the current method of calculating the basis will be maximum average monthly salary until January 1, 2006 (2004-2005), which is applied to all periods of activity (although up to 2004-2005, the average monthly salary was significantly below).

The new method will be used for retirement after January 1, 2010, which means raising the newly appointed pensions. So, according to new rules: 170 manat will be calculated for each year of working experience until 2006. The amount received from the indexation of insurance part of pensions for 2006-2009 will be added to this amount (based on the level of inflation). Further, this sum is divided into 144. The insurance capital accumulated in the individual account, which is also divided into 144, will be added to the result. This will make insurance part of pension.

The base is calculated to insurance part of pension. Therefore, pensioners with 12 years of work experience until 2006 will receive pension more than 90 manat. For example, for those retired in 2010 with 40 years of experience, 36 years of experience will be calculated upon the old and 4 years upon the new system. In this case, 36 are multiplied to 170, plus the inflation of 2006-2008, i.e. 8.3 percent, 16.7 percent and 20.8 percent. Amount received at 9,434 manat is divided into 144 (the number of months over 12 years) and 65 manat is obtained.

If to account the insurance capital of the pensioner at 20 manat (premiums from the salary in amount of 300 manat for 4 years), in this case the insurance part will total 85 manat (65 +20). After adding the base part of the pension (75 manat) this would amount to 160 manat. This statistics show that despite the long working experience, in recent years 60.8 percent of pensions were set at the minimum level (75 manat).   

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