With the collapse of the Soviet Union in 1991, people in the Republic of Georgia lost their savings and social provisions. With this event still freshly engraved in the memory of many Georgians, trust in public mechanisms in Georgia is low. This is shown in the attitude of Georgians towards long-term risks: mentally Georgians rely on their family and private savings. Voluntary life insurance and pensions provisions are practically non-existent. This fundamental problem shows the vulnerability of Georgian society. The reason for the absence of these instruments could lie in the lack of availability of adequate services, or again in the lack of trust in such instruments, but it is suspected that the biggest problem is the Georgian public attitude towards risk.
Need for longevity insurance in Georgia
The clear need for longevity insurance in Georgia is illustrated by the state pension scheme, currently the only feasible alternative. This so called “solidarity based model”, where the current income generating population pays for the pensions of elderly people, pays out a monthly sum of just US$ 45 a month (in a country where GDP per capita is about US$ 2,900). Although there have been some voices to move to a combined pension system, which might encourage private pension development, Georgian tax legislation is not conductive to private pension development. The level of policy discussion on this very important topic is minimal.
Possibilities of longevity insurance development in Georgia
The microfinance sector in Georgia is lightly regulated by the government. Micro Finance Institutions (MFIs) are allowed to implement micro-insurance services, but in order to do so MFIs are required by Georgian law to cooperate with a licensed insurance company. Essentially, MFIs can act as agents, with a licensed insurance company as their partner.
As far as the attitude of the Georgian government is concerned, there have been very interesting initiatives by the President of Georgia regarding “cheap health insurance”, where the government was ready to subsidize about 80% of the insurance fees in order to make health insurance affordable for large parts of the population who are neither financially self-sufficient, nor receive social subsidies from the government. Although the take-up of this product was very low, and it is unknown what the government will do with this programme in the future, it does indicate the government’s willingness to move into this direction.
Although there are insurance companies in Georgia who offer some sort of pension scheme, but these are not designed for / targeted people with low-income. Because microfinance services in Georgia today are limited with just micro-credit loans, the Pension & Development Network believes that longevity insurance mechanisms, including pension schemes as well as saving instruments, are essential for tackling poverty in Georgia and increasing the stability of the middle-income population, which are equally vulnerable.
Raising awareness for the importance of saving for old age
Malkhaz Dzadzua, director of the Georgian MFI JSC Crystal, believes that the poor in Georgia do not yet realize the importance of saving for old age security. “The reason could be the post-Soviet mentality, when the Government was providing and deciding everything. Another reason could be the level of financial literacy. According to the European Bank for Construction and Development, the financial literacy in the three South Caucasus republics is lower than the financial literacy in the three poorest countries of Latin America. Therefore, I think the Republic of Georgia needs a strong awareness raising campaign and consumer education.”
Can Georgians afford to contribute to old age security?
The Pension & Development Network believes that it should be possible to tailor longevity insurance mechanisms, including pension schemes as well as saving instruments, to the financial capacity of the target group, and is currently looking into possibilities of assisting in the development of these products.