Should retirement age be reconsidered in Azerbaijan?

Analysis Materials 15 February 2012 17:44 (UTC +04:00)
It is proposed to increase the retirement age as one of the variants for unloading the pension budget in Azerbaijan.
Should retirement age be reconsidered in Azerbaijan?

Baku, Azerbaijan, Feb. 15 / Trend /

Leyla Abdullayeva, Trend Analytic Center Expert
It is proposed to increase the retirement age as one of the variants for unloading the pension budget in Azerbaijan.

"If the rates of social contributions and the number of taxpayers per retiree remain unchanged up to 2020, then taking into account the demographic and other issues, the load on the system and consequent, the fund's budget deficit will increase rapidly," the chairman of the Azerbaijani State Social Protection Fund Salim Muslimov said. He said that some elements of the legislation including the changes in the retirement age must be reconsidered for these reasons.

According to the budget of the Azerbaijani State Social Protection Fund, Azerbaijan's expenses for retirement pensions amounted to four per cent of the GDP in 2011, while pension contributions hit 2.45 per cent of the GDP. Therefore, the contributions cover only a small part of the pensions. This indicates the scale of the problem of financial sustainability of the country's pension system.
Regarding the retirement age, the right to the labour retirement pension is given to men aged 63 and women aged 58.5 in Azerbaijan from January 1, 2012. An annual increase in retirement age by six months to 60 years old is stipulated for women till January 1, 2016. Previously retirement age in Azerbaijan was 62 years old for men and 57 years old for women.

However, compared to the European Union, one can conclude that Azerbaijan still has one of the lowest retirement ages. The increase in retirement age is required by the law in almost in all EU countries. Thus, this year in Germany it went up to 67 years and Italy to 66.

People retire at the age of 65 in Spain and Poland, whilst in Denmark it is 69.The retirement age in England is to become 68 years old, currently it is 65 for men and 60 for women. The law on pension reform was adopted in Ukraine. The retirement age for women was increase to 60 years old and for men in the public sector up to 62 years old.

Life expectancy in countries thinking about increasing the retirement age is higher than in Azerbaijan. The average life expectancy is 73.6 in Azerbaijan. Proposals have been made to increase the retirement age to 75 in Sweden, where the life expectancy is among the highest in the eurozone. According to Dagens Nyheter, every second child born in Sweden now will live to be 100 years old.

For example, life expectancy in Russia increased by 3.7 years over five years. However, this is still less than in Azerbaijan - nearly 10 years less. Accordingly, the retirement age is lower there and is 55 for women and 60 for men.

There is about one person registered with the State Social Insurance Fund and paying his social pension for every pensioner in Azerbaijan.

Thus, according to statistics, as of Jan. 1, the number of pensioners amounted to 1,278 and 1.966.854 million had individual social insurance accounts.

Today. the number of retirees is expected to increase. This is connected with the fact that people born after World War II will retire.

There will be an imbalance between the number of working-age people and the number of elderly. This will mean a sharp increase in the pension burden on the working population, taking into account the parameters of the pension system and the labor market. This could
negatively affect not only the financial maintenance of the pension system, but also the prospects for economic development overall.

However, increasing the retirement age is only one solution to the problem. It is not a popular move, globally speaking. Therefore, the Azerbaijani government should seek to reform the pension system to guarantee the financial security of retirees by using other measures.