Who can join the pension scheme in Georgia, for whom joining the funded pension scheme is voluntary  and for whom it is mandatory. Civil law specialist, lawyer and business advisor Gvantsa Zhorzholiani spoke on the issue in air of the radio Commersant.

According to Gvantsa Zhorzholiani, the pension scheme applies to all employees in Georgia who work and receive monthly income as well as self-employed persons and foreigners with permanent residence permits.

“When we talk about voluntariness, one thing must be said: the law came into force on August 6, 2018. The law then contained a clause that joining this funded pension system was mandatory and voluntary.

Citizens who were 40 or over 40 years of age as of August 6, 2018 had the right to voluntarily join the funded pension,

the law set the deadline as May 31, 2019. Before the enactment of the law employees aged 40 or older had the right to decide whether to join the voluntary system or not.

Now the salary of all employed persons that is officially paid is subject to income tax, everyone are obliged to join the pension scheme” Gvantsa Zhorzholiani notes.

How does the pension system work?

The funded pension scheme is based on the 2% + 2% + 2% principle of accumulation. The employer transfers on behalf of the employee 2% of the untaxed amount of employee salary to the employee's individual pension account. The same amount is contributed to the employee’s individual pension account by the employer on their behalf. Based on the amount of the employee's salary (but not more than 2% of the untaxed salary), the contribution for the benefit of the employee is also made by the state.

The government will transfer 2% of the income of the participant to one's private pension account when the annual salary of the participant/income of the self-employed individual is less than GEL 24,000 and will transfer 1 % if the amount received by a participant as annual salary and/or by a self-employed person as income is from GEL 24 000 to GEL 60 000. The State shall not make a pension contribution if the amount of the annual taxable salary of an employed person and/or of the income of a self-employed person exceeds GEL 60 000.

If I am an employee over 40 years, do I have the right to watch  how the system works and only then decide whether to join the system or not?

People aged 40 and over had the opportunity to join the pension system voluntarily before the enactment of the law in May 2019. Now it is compulsory for all and everyone must join the pension scheme.

I work multiple jobs, from which place of work will the amount be transferred to pension savings?

From absolutely every place of work, no matter whether it is 2-3 or 4 places, pension tax will be deducted.

What about the self-employed?

In the case of the self-employed, the system is the same, 2%+2%+2%, but the self-employed pay 4% to the pension system, 4% and 2% will pay the state.

Question: When I reach retirement age, how will I get money from my pension fund, immediately or will it be distributed? What is the distribution formula for the amount?

The retirement age for women is 60 years, for men – 65 years.

The law here offers us a certain formula — in what cases can we take money in a lump sum? Can we get money before reaching retirement age?

The law provides two cases. First, when a person is employed and under certain circumstances became disabled, in this case he leaves the accumulated pension system, files an application and has the right to get his entire pension at once. And the second, if a citizen files an application saying that he leaves Georgia forever. In this case, a citizen has the right to take a lump sum of savings from the pension system, if he has not reached the retirement age.

What happens if a citizen reaches retirement age? How is the amount distributed?

Unfortunately, we do not have the right to demand transferring the entire amount. There is a certain formula here too. The National Statistics Office publishes life expectancy statistics annually. As per the latest data, an average life expectancy is 74 years. For example: a person (male) turned 65 and joined the pension scheme. The system calculates as follows:

The difference between 65 and 74 years is 9 years. Conventionally, our accumulated pension savings made GEL 100,000. In this case, 9 years are converted into months, this amount is divided by the number of months, the received amount is credited to a pensioner every month.