Pensions to increase in 2021

By Natalia Kochiashvili

Friday, January 8

According to the Law on the Development of Mountainous Regions, people of retirement age living in the mountains are entitled to a monthly supplement of 20% of the state pension.

The pension of all pensioners will increase not less than the inflation rate, i.e. the increase in prices will no longer affect the amount of the real pension.

In 2020, amendments to the law were made on pensions, resulting in the definition of an automatic mechanism for reviewing pensions annually. As a result of the pension indexation formula, from 2021 the basic pension has increased by GEL20 to GEL240, while the old-age pension over 70 has increased by GEL25 to GEL275. Pensions are one of the most important social and political issues in Georgia. Moreover, it is the only source of income for hundreds of thousands of people, so its volume is often an integral part of election promises and political discourse.

Obtaining the indexation formula was one of the components of the ongoing program with the International Monetary Fund. According to the new formula, the rate of pension growth will depend on the level of inflation and economic growth. More specifically, pension indexation is defined by law as follows: Pension for elderly under the age of 70 - will increase by the average inflation rate of the last 12 months, but not less than GEL20. Pension for pensioners aged 70 and over - by the sum of the arithmetic average of 80 %of the average GDP growth rate for the last 12 months and real GDP growth rates for the last 6 quarters, but not less than GEL25. Thus, regardless of inflation and economic growth parameters, the pension increase will not be less than GEL20, and for pensioners aged 70 and older it will not be less than GEL 25.

Compared with the level of basic pension with other countries in the region, the pension in Georgia is quite close to the average pension in Ukraine, which is $ 72. Pensions are higher in Armenia, at about $ 86. The average pension in Azerbaijan is $ 176; In Russia - $ 218 dollars.

According to the draft budget for 2021, a total of GEL2.6 billion will be spent on the pension provision of the population. This is GEL370 million more than in 2020. According to the Ministry of Finance, GEL210 million will be spent on the introduction of indexation, and the increase in the number of pensioners will increase the costs of the system by GEL160 million.

Over the next 5-10 years, the growth rate of the number of retirees will accelerate even more, because today one of the largest age group - people aged 55-60, or so-called "Baby Boomers" will start retiring, therefore, from 2022, the pension budget of the population will reach GEL3 billion.

With such an increase in the budget, it is interesting to look at how the purchasing power of the pension itself has also changed. If we compare the amount of the basic pension in US$, we will see that the pension in dollars was the highest in Georgia in 2013, when the then 150-GEL pension was $ 86 dollars. In 2020, the base pension of GEL220 will cost $ 66.8. If the lari does not depreciate next year, the value of the GEL240 pension will be $ 72.9, still less than the 2013 pension.