Pension Reforms to Serve and Protect the Vulnerable

pension reform
A woman withdraws her pension in Baku, Azerbaijan.

During the first years of independence, Azerbaijan suffered a severe economic crisis which quickly resulted in a collapse of the social safety net maintained during the Soviet era, leaving the displaced, the disabled, single mothers, and the elderly particularly vulnerable. In 1995-96, the World Bank estimated 60% of Azerbaijani households to be living in poverty.

Arzu Ibadzade, resident of Baku, reminisces of those years: “It was very difficult (to live before targeted social assistance) with 5 children and one of them disabled. I couldn’t work, that’s why living was very hard.”

Highlights

  • The main achievements include higher productivity due to the development of ICT systems, improved client service, and improved satisfaction by pension fund employees.
  • The average pension in Azerbaijan is now over $151 a month, and over 1.9 million workers have received modern social insurance cards.
  • Over 97.4 percent of pension payments are now paid on-line via the banking system, a level achieved in only a few countries worldwide.

The Government saw the urgent need for implementing relevant policy measures, including the policies for social protection of the elderly and other vulnerable groups of people. The existing pension system was not fitting the needs of current-day Azerbaijan, since the pension administration system was completely out-dated.

In September 2003, the Government of Azerbaijan and UNDP signed a project to support the national reforms in the pension system and to incorporate advanced ICT systems in the operations of the State Social Protection Fund, the key government agency for pension reforms.

Strong national ownership of the project was the most critical factor for the success of this project. From 2003 to 2009, pension contributions have increased by over 460 percent. State-of-the-art IT systems have been installed, dramatically reducing the amount of paper in the system. By the end of 2009, over 1.6 million workers, representing almost 90 percent of the target, had received modern social insurance cards.

There are many advantages to the new system. It now provides better service to employers, insured persons and pensioners. Through this project, Azerbaijan has moved from a system which was perhaps 30 years out-of-date to a system which reflects modern international standards.

Bayram Babayev, a beneficiary accessing services in the Pensions Assistance Department, confirmed:  “There are not any problems here, they serve on time. Card system is much better for us, when you want you can take out your money. I hope it will be much better in the nearest future if the basic part of pensions will increase.”

As of September 2010, Azerbaijan had the second highest basic pension (US$ 106) in the CIS, after Kazakhstan and ahead of Russia and Belarus. This success is remarkable, considering the multitude of challenges that the country faced after independence in 1991, and the low baseline it started from. While a few years ago, Azerbaijan looked up to the experience of the Baltic states in pension reform, today it has become an example for many countries including Afghanistan, Iraq, and states in Africa and Latin America.

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