3 sets the main goals of Overcoming constraints

Aricle 7.3 sets the main goals of Overcoming constraints

pension system, including voluntary social insurance and non-state The beneits adequacy in the social pension funds.

protecion system in Azerbaijan

b) State Programme on Development represents an important issue. Although of the Insurance-Pension System the government has demonstrated

in 2009-2015, was approved by a important eforts to bring the social Presidenial Order in 2008. It aims protecion beneits closer to the level at developing a viable system and of minimum subsistence standards ensuring its coninuous improvement, of populaion between 2000 and and to guarantee a proper pension 2015, the last developments in the provision.

economy of Azerbaijan have seriously

c) Concept on the Pension Provision undermined these policies. System Reform in 2014-2020 was The economic crisis and high

approved by the Order of the inlaion rates IN 2015 can represent President of the Republic of an important threat, to the State Azerbaijan on 4 November 2014 capacity to deliver on the long-run No.827. It ofers recommendaions pensions indexed on prices. Thus, the based on internaional best pracices subsistence minimums themselves and experiences, in order to establish where only parially indexed ater the

a robust pension system and provision devaluaion of 2015. Scarce resources in the long run.

will be accompanied by a larger demand in terms of beneiciaries impacted by the crisis but also in terms of pension amount.

Azerbaijan: Universal Pensions Table 2. Azerbaijan: Overview of key social, economic and demographic indicators

Region Europe & Central Asia Income level Lower middle income Annual populaion growth (2014) 1.2% Populaion above 65 years old (2016) 5.6% of total populaion Life expectancy at birth for women/ men (2014) 71.6 / 76.8

HDI (2014) 0.751 [78/188]

GDP (in billion current US$, 2015) 53,047

GDP growth (2015) - 1.1 %

GDP per capita (current US$, 2015) 5 496,34

GNI per capita, Atlas method (current US$,

General government inal consumpion

expenditure (% of GDP) 12,51%

Minimum wage 105 AZN Average salary in 2015 466,9 AZN Labour force paricipaion rate (% ages 15 and 66.1%

older, 2015)

Employment to populaion raio, ages 15-24,

total (%) (modelled ILO esimate) 30.4% Number of economically acive populaion – 4915,3

thsd. Persons

Unemployed persons, thsd. Persons 243,7 People beneiing from unemployment beneits 1543

Number of pensioners 1 494 106 (87 % through labour pensions and others through social allowances)

People beneiing from an old age labour

pension 785 068

Amount of old-age social allowance 66 Azn Amount of survivor social allowance 61 Azn

Amount of basic-lat rate beneit for old-age

labour pension 110 Azn

Amount of the minimum pensions

allocated 110 Azn Poverty rate (2015) 5% Urban populaion (2015) 54,62%

Sources: World Development Indicator (WB/WDI) Human Development Indicator (UNDP/HDI) The State Staisical Commitee of the Republic of Azerbaijan

Azerbaijan: Universal Pensions

Indeed, annual level of consumer forecasts show that if the present price index deined by corresponding trend will coninue, the number of execuive body is taken into beneiciaries of social allowances consideraion in case of re- will raise because important part of establishing basic part of old-age populaion will note have any rights

labour pension. The insurance part of to labour pension 2 .

a labour pension and pension capital accumulated in the insurance part

3. What are the main results

of a personal account are indexed at

in terms of impact on people’s

least once a year to the level of the

lives?

consumer prices index established by the appropriate execuive body.

Economic results demonstrated The social insurance pensions by Azerbaijan since 2000s due to inancing represent several concerns. posiive dynamics of energy prices According to pension reform concept, have enabled the Government to the public budget was responsible for achieve an improvement of ciizen’s the inancing of pension liabiliies for well-being, through reinforcing the the period of rights acquired before qualitaive aspects of the social 1992. However, in reality the public protecion system and economic budget covers only the diference development, based on internaional between beneits which should be best pracices. However, it is necessary paid as labour pensions and the to further develop a comprehensive contribuions collected through insurance and pension system that pensions system. In this regards, the relect the country’s economic and efecive introducion of third pillar of social situaion. the pension system is diicult.

During the recent years a number of During last years the country has important measures were taken in made a range of important eforts the area of improving the standards in coverage of populaion by social of living of the populaion, serious insurance mechanisms. If in 1990s the steps were made in the direcion of most of populaion was unaware of improving the pension provision of existence of pension system and was the ciizens. reluctant to pay any contribuions. At According to the studies made in present, most of employed persons 2009, the social protecion system had in Azerbaijan are covered by social

a very posiive impact on the absolute protecions system. However, the poverty reducion. Thus, the universal informal economy and self-employed social protecion system had reduced persons represent an important the absolute poverty rate from 30.9% impediment in further extension of to 10.9 %, with special posiive impact social security coverage. The actuarial

² See Durin & Tretyak (2012)

Azerbaijan: Universal Pensions

of old-age and disability pensions 3 . based on actuarial calculaions and Although the more recent igures

staisical data, with the corresponding were not found, the posiive impact acion plan. Harmonizaion of pension of universal social protecion system schemes with the country’s socio- on poverty elevaion remains strong. economic development, as well as

building and strengthening capacity

4. What’s next?

should enable Azerbaijan to deine the long-term development prioriies

Now that the irst two iers of of these systems. the system (ixed allowance and insurance) are well established,

This Universal Social Protecion brief Government plans to develop a third

was produced by Olivia de Vendeuvre pillar, based on savings, as sipulated

of Experise France. It was reviewed by in the pension provision reform

Andrei Tretyak of Experise France, and concept and in the development

Isabel Oriz, Mariko Ouchi and Loveleen concept Azerbaijan 2020. This would

De of the ILO. diversify the inancial sources of

the pension system and thus its sustainability, while allowing higher

pension rates. This pillar should References

nonetheless be developed taking carefully into account the inlaion Azerbaijan State Social Protecion Fund web- rates, economic situaion and stability page: www.sspf.gov.az of inancial markets. Even if MLSPP has made great ILO (1999), Republic of Azerbaijan: Prelim- progresses in the modernisaion of inary Assessment of the Social Protecion its controls funcions, the system sill System. fails to cover all medium and large insurers, and control are highly ime- Internaional Social Security Associaion consuming. In this regard, the MLSPP (ISSA) webpage: www.issa.int (and SSPF as part of its structure) is planning to develop an automated Fan, Lida; Habibov, Nazim; ISSA. iscal control (e-audit) system Blackwell Publishing. 2007. “Social protec- crossing the various public database, ion and poverty in Azerbaijan, a low-income in order to reduce the ime spent on country in transiion: implicaions of a house- audits and develop automaic alert hold survey”, (Internaional Social Security mechanisms, for all types of insurers. Review, N° 4, vol. 60, p 47-68 (October/De- Finally, a sustainable pension system cember 2007)) requires sound analysis mechanisms

³ Studer (2012)

Azerbaijan: Universal Pensions

Durin, F & A. Tretyak (2012), “Disabled peoples in Azerbaijan: model for projecions and long-term trends”, Social Protecion in Azerbaijan N°4

Studer, N (2012), “Fight against poverty in Azerbaijan”, Social Protecion in Azerbaijan N°5

Bolivia Main lessons learned

• Bolivia’s

Renta Dignidad

Universal Pensions

programme shows that universal social protecion for older persons is achievable, even in developing countries.

Renta Dignidad (“Dignity

• This non-contributory social

Pension”): Making the social

protecion programme has a

protecion loor a reality for all

signiicant impact on poverty

older people

reducion for older persons and other family members living

Despite having the lowest GDP per with the elderly; ithas reduced capita in South America, Bolivia has

poverty by 14 percentage points. achieved one of the highest coverage

rates in old-age pensions. With the • Poliical will and the government’s introducion of the non-contributory

commitment are essenial. In paricular, increasing iscal space

old-age pension Renta Dignidad in is indispensable to signiicantly 2007, Bolivia closed coverage gaps and extending old-age pension

achieved universal coverage. coverage. Renta Dignidad is Renta Dignidad costs around 1 per cent

inanced by revenues from of the country’s GDP and is inanced

natural hydrocarbon resources. by public revenues generated from

taxes on oil and gas producion and • Renta Dignidad is administered dividends from a group of state-owned

by the Ministry of Economy and companies.

Public Finance but the Bolivian The impacts of Renta Dignidad on

Armed Forces have also played people’s lives are remarkable. For

a criical role in achieving higher example, the programme led to a

coverage rates in remote rural areas. There are over 200

reducion in the poverty rate by 14 payment points installed in percentage points at the household military faciliies and its mobile

level. Renta Dignidad has secured

units.

the incomes and consumpion of beneiciaries, reduced child labour,

• By boosing local demand, and increased school enrolment. In

simulaing the rural economy, households receiving the beneit, child

and improving civil registraion labour has been halved and school

in rural areas, the universal old- enrolment has reached close to 100

age pension is a driver of growth per cent.

and development.

Bolivia: Universal Pensions

1. What does the pension

These amounts represent 38 per cent

system look like?

of the poverty line and 21 per cent of the minimum wage, respecively.

Renta Dignidad is a universal

programme, i.e. there are no Financing

condiions or means tests to receive the beneit. Along with the country’s The scheme’s cost (beneits plus condiional cash transfer programmes, administraive costs) amounts to Bono Juancito Pinto (for school roughly 1 per cent of GDP. It is inanced children) and the Bono Juana Azurduy from two sources: resources derived (for expectant and new mothers from a direct tax on hydrocarbons and their infants), Renta Dignidad is and dividends from naionalized another step forward towards creaing public enterprises that are earmarked

a naional social protecion loor. to inance the Renta Dignidad. The Government’s revenue from the

Key igures

exploitaion and sale of hydrocarbons has increased tremendously. This in turn

• Renta Dignidad reaches 91 per has brought about a signiicant increase cent of the populaion over the

in iscal revenues and hence iscal space age of 60.

for inancing social protecion. • The monthly beneit amount is

250 bolivianos (BOB) (US$35.9)

Legal aspects

for beneiciaries without a contributory pension. BOB200

Renta Dignidad was established in ($28.7) is paid to recipients of the

2007 by Act No. 3791, replacing contributory scheme.

the previous social pension scheme • Involvement of the armed forces

known as BONOSOL. The beneit is has played a criical role to

guaranteed under the Consituion achieve higher coverage rates in

of 2009, which states that “all older rural areas.

persons have the right to a digniied old age, with human quality and warmth. The State shall provide

Beneit packages

a lifelong old-age pension in the framework of the integrated social The monthly beneit amount for security system, as sipulated by reirees who are not part of the legislaion.” Eligible beneiciaries contributory pension scheme was must be at least 60 years of age, be raised in 2013 to BOB250 ($35.9) and

a Bolivian or naturalized ciizen, be to BOB200 ($28.7) for those covered domiciled in the country, and have a by the contributory pension scheme. naional idenity document.

Bolivia: Universal Pensions

Insituional arrangements for

generated by these enterprises

delivery

were earmarked to inance the Renta Dignidad. Second, in 2006,

Renta Dignidad is administered by the Government renaionalized the the Ministry of Economy and Public hydrocarbon sector and recovered Finance with cooperaion from the ownership and control of the country’s military and the naional banking natural hydrocarbon resources. The system in the delivery of beneits.

allocaion of revenues from this sector The pension is paid on a monthly was renegoiated with an 82 per cent basis. The payments are made in share of revenues going to the State more than 1,100 payment centres and 18 per cent to private companies. across the enire country, including This allowed for the creaion of iscal branches of inancial insituions space for inancing social protecion. and Naional Armed Forces payment

centres. Involvement of the armed Figure 1. Cost of Renta Dignidad in percent - forces has played a criical role in age of GDP

reaching high coverage rates in remote rural areas. There are more than 200 payment points installed in military faciliies and its mobile units. All military mobile units are equipped with mobile satellite dishes. The centralized database of beneiciaries can be accessed from any place in the country, allowing beneiciaries to collect their pensions anywhere.

Source: APS. Estadísicas 2014.