Introduction
The pension system is crucial in ensuring the population’s quality of life and should be considered in the country’s legislation. The Azerbaijan government has been in constant operation to ensure that it upgrades the pension system and that reforms can help the people. The pension issue includes many problems to consider; an example of such a matter is the unofficial employment of citizens, which limits pension opportunities. Another example is the confidence of citizens in state systems and how to pay them. The current essay aims to explore the system’s various aspects and the potential for change and innovations that need to take place to ensure the effectiveness and sustainability of the system.
The paper analyzes the pension legislation and the features of the Azerbaijan system. It investigates the foreign countries’ experience to find a model or aspects that can be followed to enhance the system. This essay will additionally offer various proposals as potential perspectives for developing and improving pensions in the country. Although the government has implemented important legislative projects in recent decades, contributing to the pension system’s improvement, it still faces specific challenges. It has space for advancement, which can be gleaned from other countries’ experience.
Overview of Azerbaijan’s Pension System
Azerbaijan was part of the Soviet Union, and the new modern history of its legislation began after its collapse in the 1990s. The system has not yet been fully formed, but a significant trend is the pursuit of liberalization. The current Azerbaijan system formation dates back to 1997, when the Law on Social Insurance, 250-IQ (1997) was adopted. It established specific aspects and conditions for social insurance in the country.
Another important law for the pension system was Law On Labor Pensions, 54-IIIQ (2006). It affirms critical pension payment regulations and protects the population’s rights to receive them. Certain efforts by the Azerbaijani government have led to improved measures in the pension system and various factors that would make people’s lives more comfortable.
After implementing the abovementioned laws, pensions are based on three main components – basic payments, part provided by insurance, and voluntary savings. Following this structure, pensions are paid by their three elements: the main flat-rate benefit, the insurance part, which is recalculated annually, and independent savings. Such pensions are one type of pension payment – they are labor granted to citizens with at least twelve years of labor experience. Social pensions are paid to those without experience, and citizens have the right when they are older than in the case of labor payments, but this paper does not focus on this type. The established structure of labor pensions has both advantages and disadvantages.
The reform of the pension system was aimed at improving the welfare of Azerbaijani citizens. In particular, several components in pension payments, as well as their adaptability and recalculation, guarantee the financial security of the population in changing socio-economic circumstances. Moreover, the insurance component required the creation of personal accounts for older citizens and made it easier to distribute payments through cards, facilitating the process.
However, it is worth noting that the third component, voluntary savings, is not yet sufficiently established in the country, which limits the possibilities of the population. Moreover, one may suggest that innovations, in particular insurance, can cause distrust among citizens, and therefore, there is a need to strengthen these institutions and work with the population. It is essential to consider other countries’ achievements in pension systems to find additional directions for improvement.
Analysis of Foreign Countries’ Pension Systems
Identifying the various potential changes and specific innovations regarding the Azerbaijani pension system requires analysis and comparisons of other countries’ conduct in ensuring citizens’ well-being. The current paper includes the investigation of the pension systems in Sweden, Germany, and the United Kingdom. These systems are some of the best examples in the world.
Pension payments in Sweden also include several sources, such as the Azerbaijani system. Firstly, Sweden’s pension system is characterized by having a precisely defined contribution plan that requires employees to contribute to a private account during their entire work career. The other two sources of finance for retirees are personal savings and occupational pensions. The amount that should be submitted from the pension depends on the money in the savings account.
The Swedish government also ensures that additional payments are provided for those with an insufficient pension to ensure a decent living. The system guarantees that these pensioners receive the amount to be disbursed based on how they contributed to their savings accounts. Therefore, they encourage most employees to be engaged in saving schemes to secure the sustainability of their future.
Germany, on the other hand, incorporates the presence of a combinational pay-as-you-go system with a private system. Employees can choose to provide a pension for themselves, or it may depend on the place of work. The employees are also given a platform to contribute to these private pension systems, increasing their pensions.
The United Kingdom also has a three-level system with minor differences. Levels include “basic state pensions, additional state superannuation pension, and non-state pension savings.” The criteria used in disseminating pensions depend on the years one has worked, with an additional factor of the average wage. Thus, there are similar characteristics in the selected pension systems, especially in the issue of diversifying sources for pension payments.
Proposals for Azerbaijan’s System
Based on the assessment of the three systems of the pension system in the presented countries, several innovations can allow for the change, growth, and potential sustainability of retirees in Azerbaijan. The possible changes include introducing a defined contribution plan that emulates the Swedish format. The system would create the need for the employees to embrace saving money, and subsequent payments would be based on the amount they contributed. At the same time, the state will support those citizens who cannot make sufficient savings to prevent them from falling into poverty.
Secondly, the other form of innovation includes implementing private pension plans in tandem with the system used in Germany and the United Kingdom, and the third pillar in the Azerbaijani new system. The presence of this format would pave the way for the employees to be more flexible and have various options to save money. Such changes will be essential in ensuring the retirees’ well-being in the country.
Conclusion
The pension system in Azerbaijan has continuously improved over the last few years. However, much effort is required from the country to make a change and ensure sustainability for its citizens even in the future. Considering the experience of several countries that were able to provide decent pension payments to their citizens, the current analysis notes the similarity of their systems. In particular, they diversify the sources of payments, more often including three levels, and support those citizens who cannot make sufficient savings.
Azerbaijan has already taken several steps towards such a system. However, there is a need to help the population in efforts for independent savings and payments to those who cannot provide funding. The implementation of these two proposals will improve the pension system for citizens.