Head of State Fund of Social Protection of Azerbaijan explains new method of pension calculation

The State Fund of Social Protection of Azerbaijan has introduced to the government a draft law envisioning changes in the system of pensions calculation, said head of the State Fund of Social Protection of Azerbaijan Salim Muslimov at a press conference in Baku.

He said the new method rules out the influence of salaries of persons, who retired before  January 1 of 2006.

"We will put an end to the previous method. It hampers us from holding actuary calculations and give predictions for the future. We offer quite a new and facilitated system of pensions calculation, which, if approved, will be posted on the website of the State Fund and will help all people to calculate their pension", said Muslimov.

He explained the new system:

"Today, the calculation for retired persons, is held by two components: the amount of the pension right before January 1 of 2006 and the amount, defined on the basis of accumulations in line with the private calculation system after the said date.

Thus, if after January 1 of 2006, a person got AZN 28,000 within a year, 25% of this amount is found (AZN 7,000) and it is indexed on inflation by results of 2006 (8.3%) and we get AZN 7,600. Then we take the data of salaries for 2007, for example they are identical and we get AZN 14,600, this is indexed on inflation of 2007 (16.7%) and we get AZN 17,000.  

If the salary did not change for 2009, we add another AZN 7,000 - AZN 24,000 and index on inflation, for example, 20%. We get the accumulations for three years at AZN 28,845. If a person retires in 2009, by the new system, these accumulations will refer only to the insurance part and dividing them into 144 months, we will get AZN 200 per month of the insurance pension of the said person.

As is seen, the calculation here is simple and transparent, which can not be said about the period before 2006. For example, me, Salim Muslimov, have an experience of 27 years as of January 1 of 2006. In order to calculate the amount of my pension before this period, I must present a reference about the salary for 2004-2005, on the basis of which the average monthly salary will be calculated. For men60% of this indicator through 15 years of experience, plus 2% on each year is taken into account, but considering the fact that the result will not exceed 85% of the average monthly salary, it will be 64% for me.

If in the said years I earned AZN 400, by multiplying them to 64%, we get AZN 256 for the past period. We deduce AZN 25 from- the amount of the basic pension for January 1 of 2006 from this indicator. The remaining AZN 231 is indexed on the inflation of 2006 (8.3%) and 2007 (16.7%) and 2008 (for example 20%) and get the amount of pension of AZN 350, plus AZN 75 is the amount of the basic part for today and AZN 200 of calculations for the time after January 1 of 2006.

In such conditions it is almost impossible to hold actuary calculations, give forecasts about the financial stability of the system before 2025. We do not know which references the retired persons will present to us, as they have a right to request calculation of pensions on the basis of any five years of the work experience.

In this sense, we decided to put an end to manipulations and offered a new method of calculation, ruling out the factor of salary. We offer the following: the define the work experience of persons, registered in the state fund, on the basis of service record - for this purpose we will need 3-4 months. The next step: if someone has an experience of five years before January 1 of 2006, we give him AZN 25 for this. We will ensure each year by 8% over this experience. Thus, if we deduce five years from my 27 years, multiply 22 on AZN 2 (8% of AZN 25) and get AZN 44. We multiply it on inflation of 2006,2007,2008 and so on and add the amount of the basic pension to the moment of retirement".

As for the justice of this approach for persons, earning much before January 1 of 2006, Muslimov also touched upon this issue:

"The Ministry of Finance made a fair remark that to those who earned much this proposal may seem unfair. Therefore, as an addition to the draft law we offered a paragraph on the choice: if someone wants his pension to be calculated on the basis of the salary, he must present reference about the salary for all years of experience before January 1 of 2006. We will add them and divide by all months of the experience and get thje average salary. Further calculations will be held on the basis of the old system", said Muslimov.

Moreover, according to him, the information on each working person will be posted in the Internet and anyone will be able to calculate his pension.

The new method of calculation will be applied from the moment of the approval of the draft law. "We would like it to happen on January 1 of 2009, but it seems that the process of the draft law ratification will be a little bit protracted", noted Muslimov.

/Day.Az/