CBN, 25 April 2005

BAKU, Azerbaijan - A new pension system will be established in Azerbaijan beginning January 2006, without which the implementation of individual registration system will not be efficient.

Within the new social insurance system will be separated from state social assistance.

According to the chairman of the State Social Protection Fund (SSPF), Salim Muslimov, the project calls for the introduction of a three-tier pension system, through which individuals will receive a pension dependent on social payments, basic pension rates and accumulative pension.

"It will allow for the removal of some problems and our fund will have a labor pension, which has been formed on a legislative basis since 1992. At the moment, this document has 32 additions, therefore, to date pensioners cannot determine which benefit to get," Muslimov said.

While implementing the new pension system, the population will be divided into three groups. Individuals, who are already receiving pensions at the moment, will be included in the first group. Current employees will be listed in the second group, while those who begin to work as of Jan. 1, 2006, will be included in the third group.

Muslimov said that providing the population with social insurance certificates from July, 2005 will be the first step in the transfer to the new system. "We plan to provide 1.5 million people with social insurance certificates over six months. From 2008, there will be real accumulative accounts to be opened in banks," Muslimov said.

According to fund chairman, while transferring to the new system only current employees will face problems. "There are problems for current workers, as in contrast to the basic pension, the social pension will be composed of two parts: first of all, accumulated finances transferred under the old pension system will be converted, and then switched to the individual accounts system. However, there are no problems with the other two groups. People who receive pensions currently will have their basic pension deducted from the total benefit amount and that difference will be the social pension. After 2006 benefit growth for this category of pensioners will be carried out in two forms: at the expense of increasing of basic social benefits or by means of the growth of social benefits. It will also simplify the registration system and pension charges. The government will change the basic pension, but the social pension - depending on the inflation level for last year. Immediately, individual accounts accumulating social transfers will be opened for employees hired since 2006," Muslimov said.

Muslimov also said that the fund is preparing a strategy for a computerized system and the transfer to a card system.

"We are conducting negotiations with the Ministry of Communications and Information Technologies about service forms. There are several variations for the implementation of the card system - through banks, or by organizing a post-bank system, the attraction of self-governing bodies, and the installation of travelling cash machines and POS-terminals. To date, the cards of the International Bank of Azerbaijan (IBA) serve over 260,000 pensioners in Baku and Sumgayit. Over 240,000 pensioners will be covered in regional centers and cities. Presently IBA and Kapitalbank have won a tender for the serving of pensioners in regional centers and the installation of cash machines. The IBA has already installed 77 of 81 cash machines, and Kapitalbank has installed 48 of 67 cash machines," Muslimov said.

Muslimov added that the SSPF appealed to the International Monetary Fund to render technical assistance in drafting a bill for the Private Pension Fund.

According to Muslimov, today the implementation of the private pension fund is impossible in because of a lack of legislative basis regulating their activity. This document may be adopted at the end of the year.

Even after the establishment of a legislative act, and the licensing of the private pension fund, there are problems in placing charged finances, Muslimov added.

"It is necessary to develop a finance market and the setting up of a legislative basis for the placement of financial resources. It can be regulated as a result of the implementation of a mortgage crediting system considering the issue of long-term mortgage securities. The finances of pension funds will be a source of long-term borrowing according to world standards," Muslimov added.