General Information on the Pension Savings System in Georgia
04 March 2025
Anna Davidson, Founder and Managing Partner of JUST Advisors
Introduction:
The pension system of Georgia is a complex mechanism that includes state and funded pensions. In this article, we will consider the key aspects of pension provision in Georgia, analyze legal norms and offer solutions for various life situations.
How is the pension savings system structured?
Participants and Mandatory Participation:
Participants in the program include employers, employees, self-employed individuals (on a voluntary basis), and the state.
In Georgia, membership in the pension savings scheme is mandatory for all employees for the portion of income received as wages, except for:
● Self-employed individuals
● Employees who had already reached the following ages when the law ("On Pension Savings"on August 6, 2018 ) came into effect,- 60 years old for men and 55 years old for women
Voluntary Participation:For individuals who had already reached the age of 60 for men and 55 for women when the law came into effect, as well as for self-employed individuals, participation in the pension scheme is voluntary.
Opting Out of Participation:Opting out of the pension savings system was possible only for individuals who had reached 40 years of age before the law took effect (August 6, 2018). These individuals were allowed to exit the system by submitting an application to the Pension Fund within five months from the day they became members, but not earlier than three months from the date of membership.
Currently, it is not possible to opt out of the pension savings system once an employee has been enrolled. However, if an individual was not officially employed since January 2019 and begins working for the first time only in 2025, while having been 40 or older on August 6, 2018, they have the right to submit an opt-out application within the timeframe specified above.
Residents and Non-Residents: According to amendments made to the law on November 21, 2023, participation in the pension scheme is mandatory for Georgian citizens and individuals with a permanent residence permit in Georgia, regardless of their residency status.
Foreign Nationals:
● If a foreign citizen does not have a permanent residence permit in Georgia, they are not required to participate in the pension scheme.
● Foreign nationals or individuals with a temporary residence permit cannot join the pension scheme voluntarily.
Participants in the program include employers, employees, self-employed individuals (on a voluntary basis), and the state.
In Georgia, membership in the pension savings scheme is mandatory for all employees for the portion of income received as wages, except for:
● Self-employed individuals
● Employees who had already reached the following ages when the law ("On Pension Savings"on August 6, 2018 ) came into effect,- 60 years old for men and 55 years old for women
Voluntary Participation:For individuals who had already reached the age of 60 for men and 55 for women when the law came into effect, as well as for self-employed individuals, participation in the pension scheme is voluntary.
Opting Out of Participation:Opting out of the pension savings system was possible only for individuals who had reached 40 years of age before the law took effect (August 6, 2018). These individuals were allowed to exit the system by submitting an application to the Pension Fund within five months from the day they became members, but not earlier than three months from the date of membership.
Currently, it is not possible to opt out of the pension savings system once an employee has been enrolled. However, if an individual was not officially employed since January 2019 and begins working for the first time only in 2025, while having been 40 or older on August 6, 2018, they have the right to submit an opt-out application within the timeframe specified above.
Residents and Non-Residents: According to amendments made to the law on November 21, 2023, participation in the pension scheme is mandatory for Georgian citizens and individuals with a permanent residence permit in Georgia, regardless of their residency status.
Foreign Nationals:
● If a foreign citizen does not have a permanent residence permit in Georgia, they are not required to participate in the pension scheme.
● Foreign nationals or individuals with a temporary residence permit cannot join the pension scheme voluntarily.
Structure of Pension Contributions
- Employer: 2% of the salary
- Employee: 2% of the salary
- Self-employed individual: 4% of income
- State Contribution:
- Within the first GEL 24,000 of annual salary/annual income in the respective calendar year - at the rate of 2% of the taxable salary of the employee and/or income of the self-employed person;
- If the amount of annual salary/annual income in the respective calendar year exceeds GEL 24,000 - at the rate of 1% of the taxable salary of the employee and/or income of the self-employed person from the specified amount up to and including GEL 60,000;
- The state does not make pension contributions regarding taxable salary of the employee and/or income of the self-employed person above GEL 60,000 in the respective calendar year.
- If an employer fails to make pension contributions, neither their share, the state’s share, nor the employee’s withheld contributions will be credited—since these 6% contributions are interdependent. In such cases, an audit is conducted, the employer is fined, and they are required to pay the missing contributions. The fine does not exempt the employer from fulfilling their obligation to make the required payments.
Investment of Pension Assets
Pension assets can be invested in three investment portfolios with varying levels of risk and expected returns:
For the purpose of investing pension assets, an Investment Service is established within the Pension Agency.
A participant or pension recipient has the right to change their investment portfolio, including transitioning from a higher-risk to a lower-risk portfolio or vice versa, by submitting the corresponding application to the Pension Fund. However, pension savings can only be held in a single investment portfolio; their distribution across different risk levels (e.g., 20% in high risk, 80% in medium risk) is not allowed. The portfolio can be changed no more than once per year.
- Conservative (low-risk) investment portfolio
- Balanced (medium-risk) investment portfolio
- Dynamic (high-risk) investment portfolio
For the purpose of investing pension assets, an Investment Service is established within the Pension Agency.
A participant or pension recipient has the right to change their investment portfolio, including transitioning from a higher-risk to a lower-risk portfolio or vice versa, by submitting the corresponding application to the Pension Fund. However, pension savings can only be held in a single investment portfolio; their distribution across different risk levels (e.g., 20% in high risk, 80% in medium risk) is not allowed. The portfolio can be changed no more than once per year.
Financial Aspects and Calculations
Changes in Contribution Amounts: An increase in the pension contribution is not possible, as the amount of the pension contribution is established by the Law ‘’On Accumulative Pension’’ and must be made in accordance with the percentage rates specified in the law Average Returns on Pension Savings in Recent Years:
- According to the data from the annual investment report published on the Pension Agency's website, which covers the last five years of the Agency's investment activity, the net asset value indicator is presented. We observe that the net nominal return over 5 (five) years is 58.2%, while the real return is 14.8%. According to the data for the last year, the nominal return is 12.5%, and the real return is 12.1%.
Access to Pension Savings and Payments
Conditions for Withdrawal: Reaching retirement age.
Early Withdrawal Possibilities: Funds can be withdrawn early in the following cases:
In retirement age, pension payments can be made:
1. Through a programmed withdrawal, which involves dividing the total value of the pension assets recorded in the individual's personal pension account as of the participant's retirement date by the participant's expected remaining life expectancy and receiving it as a monthly pension;
2. Through the purchase of an annuity insurance product using the pension assets recorded in the individual's personal pension account, which implies that the participant purchases a private pension insurance product and receives a pension for life;
3. Through a lump sum withdrawal of the total pension assets recorded in the individual's personal pension account as of the participant's retirement date. This method is available if the individual joined the pension scheme no more than five years before reaching retirement age.
Transferring Pension Funds to a Foreign Bank Account:
Early Withdrawal Possibilities: Funds can be withdrawn early in the following cases:
- Loss of working ability by the participant
- Transfer of pension assets to an heir upon the participant’s death
- Permanent departure from Georgia
In retirement age, pension payments can be made:
1. Through a programmed withdrawal, which involves dividing the total value of the pension assets recorded in the individual's personal pension account as of the participant's retirement date by the participant's expected remaining life expectancy and receiving it as a monthly pension;
2. Through the purchase of an annuity insurance product using the pension assets recorded in the individual's personal pension account, which implies that the participant purchases a private pension insurance product and receives a pension for life;
3. Through a lump sum withdrawal of the total pension assets recorded in the individual's personal pension account as of the participant's retirement date. This method is available if the individual joined the pension scheme no more than five years before reaching retirement age.
Transferring Pension Funds to a Foreign Bank Account:
- If the accumulated pension amount is received in accordance with the procedure established by law, the participant can independently manage the funds.
- However, when the accumulated pension funds (assets) are placed in a pension fund, their management (investment) is carried out directly by the Pension Agency and the investment service.
Management of Pension Funds, Risks, and Oversight
- The Pension Agency, an independent legal entity of public law, was established under the Law of Georgia "On Accumulative Pension" and is responsible for the implementation, management, and administration of the accumulative pension scheme. There is only one pension fund/agency in Georgia.
- In the event of unsuccessful investments, there is a risk of losing the accumulated funds held on deposit.
- A personal account is available where participants can track the status of their placed pension assets.
Planned Legislative Changes:
There are changes (but not fundamental ones) that will come into effect on May 1, 2025.
There are changes (but not fundamental ones) that will come into effect on May 1, 2025.
Relation of the Pension Savings System to the State Pension:
The state pension is a fixed amount, whereas the accumulated pension depends on the participant’s salary and investment returns.
Pension Rights When Moving Abroad:
- Pension savings cannot be transferred to another country’s pension fund.
- In the event that a participant permanently leaves the country, they have the right to apply to the Pension Agency in accordance with the procedure established by law and receive their pension assets in full. At the same time, the amount to be transferred to the participant based on their final departure from Georgia is subject to taxation in accordance with the legislation of Georgia.
- For the withdrawal of savings in case of departure, it is mandatory to provide a document confirming the loss of Georgian citizenship or the loss of a residence permit, as well as a document confirming permanent residence in another country.
Inheritance of Pension Savings
Possibility of Inheritance:
Inheritance Process:
- Upon a participant’s death, pension assets are transferred to their heir(s).
- The heirs of pension savings may be those designated by law.
- The Law "On Accumulative Pensions" does not require a will for the transfer of savings to heirs.
- Accumulative pension savings can be inherited under a will, based on which a notary issues a certificate of inheritance to be submitted to the Pension Agency.
Inheritance Process:
- The heir submits a request to the Pension Agency for the transfer of pension assets after the inheritance case has been opened, attaching the death certificate. Additionally, if the heir wishes to receive the pension assets in full, they must provide their bank details.
- Pension assets may be transferred to the heir as a lump-sum payment and/or by transferring them to the heir’s individual pension account, depending on their choice.
- An heir residing abroad may submit the necessary documentation and their preferred bank details to the pension fund in order to receive the pension assets.
Tax Aspects:
The law only contains a provision regarding taxation in the event that a participant permanently leaves the country. In this case, accumulated pension assets are subject to taxation at the time of withdrawal in accordance with the rules established by the Tax Code. The withdrawal of a pension abroad upon the final departure from Georgia is subject to income tax at a rate of 20% in accordance with Article 81.1 of the Tax Code. No similar provision is stipulated for other cases.
Formation of Pension Savings: Calculation Example for Salaries of 1,999, 4,999, and 6,100 GEL
1,999 – if this is gross salary:
1,999 * 0.02 = 39.98 – this is the employee's share
39.98 * 2 = 79.96
79.96 – 4% (2% from the employee and 2% from the employer)
An additional 2% from the state is added to 79.96, resulting in 119.92 GEL
1,999 – if this is net salary:
2,549.74 * 0.02 = 50.99
50.99 * 2 = 101.98
101.98 – 4% (2% from the employee and 2% from the employer)
An additional 2% from the state is added to 101.98, resulting in 152.97 GEL
4,999 – if this is gross salary:
4,999 * 0.02 = 99.98
99.98 * 2 = 199.96
199.96 – 4% (2% from the employee and 2% from the employer)
An additional 2% from the state is added to 199.96, resulting in 299.94 GEL
4,999 – if this is net salary:
6,376.28 * 0.02 = 127.53
127.53 * 2 = 255.06
255.06 – 4% (2% from the employee and 2% from the employer)
An additional 2% from the state is added to 255.06, resulting in 382.59 GEL
6,100 – if this is gross salary:
6,100 * 0.02 = 122
122 * 2 = 244
244 – 4% (2% from the employee and 2% from the employer)
An additional 2% from the state is added to 244, resulting in 366 GEL
6,100 – if this is net salary:
7,780.61 * 0.02 = 155.61
155.61 * 2 = 311.22
311.22 – 4% (2% from the employee and 2% from the employer)
An additional 2% from the state is added to 311.22, resulting in 466.83 GEL
1,999 * 0.02 = 39.98 – this is the employee's share
39.98 * 2 = 79.96
79.96 – 4% (2% from the employee and 2% from the employer)
An additional 2% from the state is added to 79.96, resulting in 119.92 GEL
1,999 – if this is net salary:
2,549.74 * 0.02 = 50.99
50.99 * 2 = 101.98
101.98 – 4% (2% from the employee and 2% from the employer)
An additional 2% from the state is added to 101.98, resulting in 152.97 GEL
4,999 – if this is gross salary:
4,999 * 0.02 = 99.98
99.98 * 2 = 199.96
199.96 – 4% (2% from the employee and 2% from the employer)
An additional 2% from the state is added to 199.96, resulting in 299.94 GEL
4,999 – if this is net salary:
6,376.28 * 0.02 = 127.53
127.53 * 2 = 255.06
255.06 – 4% (2% from the employee and 2% from the employer)
An additional 2% from the state is added to 255.06, resulting in 382.59 GEL
6,100 – if this is gross salary:
6,100 * 0.02 = 122
122 * 2 = 244
244 – 4% (2% from the employee and 2% from the employer)
An additional 2% from the state is added to 244, resulting in 366 GEL
6,100 – if this is net salary:
7,780.61 * 0.02 = 155.61
155.61 * 2 = 311.22
311.22 – 4% (2% from the employee and 2% from the employer)
An additional 2% from the state is added to 311.22, resulting in 466.83 GEL
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MARIA GUSEINOVA
Leading Manager of Commercial Department
Leading Manager of Commercial Department
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