Summary

The perfection of pension system is a matter of major importance in the light of ongoing reforms in Georgia.

The necessity of implementation of pension reform is dictated by a political and economic expediency, current pension system model is not in compliance with an existing reality, most likely it will significantly hamper the economic development of country in the future and also it will deepen the resisting  acute  social problems. That's why the  radical pension  reform is necessary  in Georgia.

Many developed and developing economies are  modifying their pension systems nowadays,  and this is extremely important reforms, because pensions risks are increasing through the time and the governments will have to take care on more citizen's pension.

The goal of reforms is  to address more effectively the issues of retirement income adequacy, financial sustainability of  fiscal budgets and demographic trends in the population.

The main objectives of the reforms are also to increase the purchasing power of the social pension  as much as possible, to improve the ratio of  pension income due to earned salary and to ensure the financial sustainability of the social pension model.  It's indisputable, that Georgia  stands before the high  necessity for the reform  because of several arguments:

Firstly, Georgia's demographic condition has  changed  a lot during the last period. Decline in fertility  rates and migration trends have changed significantly contributed to a reduced workforce population.  At the same time, the number of pensioners and the average life expectancy at retirement have increased as people are living longer. This,  ultimately means, that, in the near future the  working-age population will have to carry a burden of a growing elderly population.

Secondly, the analyzes of the existing pension system clearly shows that replacement rates cannot be improved only through government financing.

Besides, the universal pension now meets the poverty alleviation goal  but needs to maintain in line with price  inflation in order to continue to meet this objective.

Also pension expenditures have increased very much in the last period. So, the supplementary saving mechanisms must be introduced  for the working population to achieve  income, which will be proportional and adequate  to their earnings, in retirement. So, according to the new pension scheme, the pension should be determined to citizens as of the wages, they have  earned through the years.

So,  the private pension model will be a supplementary addition to the existing social pensions.

Private pension savings will allow citizens accumulate assets during working life and generate additional old-age income at retirement, thus receiving higher replacement income which depends on the history of earnings  through the working life of a person. So that's the mechanism, which will enable citizens to plan oldness well and not to be depended merely on state  allowance.