The funded pension reform of 2019 improved Georgia’s pension architecture significantly — but leaves informal workers without coverage in ways that will produce a retirement crisis.
Georgia’s pension reform of 2019 introduced a mandatory funded pension system for formal sector workers — requiring joint contributions of 2 percent from the employee, 2 percent from the employer, and 2 percent from the state, accumulated in individual accounts managed by the Pension Agency and invested in diversified financial instruments. The reform was significant: it moved Georgia from a pure pay-as-you-go system, where pension entitlements depended entirely on the state budget, to a mixed system with individual accumulation that should, over a full working life, provide a meaningful supplement to the basic state pension.
The design of the system is broadly consistent with international best practice for a country at Georgia’s income level. The 6 percent total contribution rate is modest compared to EU norms — mandatory pension contributions in EU member states range from 15 to 25 percent of wages — but is appropriate for a transition economy building the system from scratch and seeking to avoid the fiscal shock of high mandatory contribution rates in a context of low wages and high informality. The investment governance framework, while still developing, reflects a serious effort to build professional pension fund management capacity.
But the coverage gap is structural and serious. The mandatory system covers only formal sector workers — those with employment contracts, receiving wages through payroll, with social insurance contributions recorded. Approximately 37 percent of employed Georgians — those in informal employment — are not covered. This means that more than one-third of the current working-age population is accumulating no pension entitlement under the funded system, and will depend entirely on the basic state pension — currently GEL 300 per month (approximately USD 109) — in old age. A working life spent in informal employment will produce old-age income that is, by any reasonable measure, insufficient for basic subsistence.
The coverage problem will compound over time. Workers who are currently in their 30s and 40s, spending significant portions of their careers in informal employment, will reach retirement in the 2040s and 2050s with substantially lower accumulated pension balances than their formally employed peers — and with no mechanism for retroactive contribution for the periods of informal employment. The pension system will, in effect, institutionalise the income inequality of the working years by extending it into old age.
The ILO Social Security (Minimum Standards) Convention C102, which Georgia has not ratified, requires that pension systems provide coverage to a minimum of 50 percent of the workforce. The 2019 reform brought Georgia closer to this threshold — but informality means that effective coverage remains below 65 percent in any given year.
GILS Position: The 2019 reform was a genuine improvement. The priority now is extending coverage. GILS recommends two specific mechanisms: a voluntary contribution pathway for informal workers, with a reduced state co-contribution rate (1 percent rather than 2 percent) to reflect the lower ability to pay; and a formalisation incentive linking employer registration incentives to pension contribution compliance, so that the pension system itself becomes a driver of formalisation rather than a passive beneficiary of it.
Read the full GILS analysis: https://labour.edu.ge/law-funded-pension/