Pension system in the South Caucasus: Challenges and reform options

The countries of the South Caucasus, like other countries, are trying to change publicly managed solidarity pay-as-you-go (PAYG) pension system by the hybrid (PAYG and mandatory savings) pension system. This is due to the fact that financial unsustainability of the old PAYG systems and factors such as aging, rising longevity, declining fertility rate, reducing active population, labor migration caused financial difficulties and led many countries to rethink their pension schemes. Armenia (since 2006) and Azerbaijan (since 2014) started reforming the existing old PAYG pension system to the multi-pillar mixed model. Georgia is the only country in the South Caucasus region where the old PAYG pension system still operates. The government of Georgia proposes to shift to a hybrid pension model in 2018. This paper considers the main features and trajectories of development of the pension systems in South Caucasus countries. Considering that solidarity (PAYG) pension system plays an important role in poverty reduction and serves a valuable welfare distribution function, its reject will have many undesired social consequences. Therefore, it is advisable to introduce a more sustainable pension system. One possible solution is the introduction of publicly managed solidarity PAYG and the accumulated mandatory savings (Fully Funded) hybrid pension model. Any decision about possible reforms should be based on comprehensive analysis and study of international experience.