Analytical materials / Tajikistan

Konstantin Bondarenko: “The process of pension reform in Tajikistan is irreversible”

31.07.2015

“The lack of information campaign to explain the new pension reform may lead to the fact that a certain part of the citizens of Tajikistan that will be retired in a few years will fall into the category of “poor” population”, said Konstantin Bondarenko, an economist, in his article written exclusively for Cabar.asia.
 
The pension reform in Tajikistan continues several years, but only a narrow group of experts of relevant agencies knows of the details of this reform. According to the study conducted by the NGO “Center for Free Market of Tajikistan”, the population is not aware of the technical aspects of the reform, in fact, they do not even know that the reform is being made, despite the fact that many of them will soon be affected by it.
 
So far, all this is accompanied by low involvement of non-state actors in the reform process – professional associations, independent experts and the media, and this can adversely affect both the quality of the reform and the awareness of the population.
 
In this article, the focus is made on facts, findings and recommendations based on the study of the communication aspects of the pension reform.
 
Why pension reform?
 
Of course, the first question that arises when the word “reform” is heard – what is wrong with the old system? What is the rationale for the changes? Why now?
 
Tajikistan is not unique concerning the issue of the pension system and the need for reform of it, although it has some specific features. The fact is that since the second half of the 20th century, in most countries, the so-called “Solidarity” pension system was widely spread. Under such a system, the working generation, active taxpayers, pay one or more types (depending on country-specific legislation) of social security taxes in the budget or off-budget funds. Then, the government allocates part of these funds for pensions to the older generation of people. Thus, there is “solidarity” between generations – we pay the generation of our parents, and our children will pay to taxes so that we can have pensions.
 
Such a system has quite a number of deficiencies, but the main among them is the dependence on a certain demographic situation. The system can function when the ratio of the retired and active taxpayers is 1 retired person per 3-4 taxpayers. However, when due to lower birth rates, increasing life expectancy, or other reasons, the number of the retired is becoming only a little less or almost equal to the number of taxpayers, there simply not enough money in the system. Such situation requires permanent tax increases, which hampers economic growth or the standard of living of pensioners will decline due to lack of funds to pay decent pensions.
 
Tajikistan inherited its pension system from the Soviet Union, and it still has the character of solidarity. The attempts to introduce elements of a funded pension system by paying a 1% social tax on wages are ineffective. The accumulated funds are not invested, are not indexed, and account for a very modest amount, which is paid to citizens as a lump sum after retirement. This element of the pension system is not fulfilling the role of so-called “Pension capital”.
 
The new economic and social realities of the era of independence of Tajikistan have led to serious risk of the functioning of the old pension system. Despite the high birth rate and a relatively low life expectancy, the ratio of working people to pensioners in Tajikistan is about 2.2. As stated by representatives of the Agency of social insurance and pensions in one of the few materials in the media, [3] – “The allowance for one pensioner is composed by tax payments of only two people, which is a strong social burden”. According to the latest data of the Agency, on the 1st of July 2015, there were registered 621,000 pensioners in the country, but those actively working now is less than one and a half million people.
 
This situation is due to the general economic problems affecting the labor market – many Tajiks are working without formalizing labor relations and pay no taxes. And finally, a huge number of able-bodied citizens are in labor migration. These factors create a high risk in the near future. Aging migrant workers returning to their native land do not pay tax in Tajikistan but expect at least a minimum pension from the government.
 
Already, the annual deficit of the Pension Fund is a few tens of millions of somoni and financed from the state budget. This lack of funds is clearly confirmed by the fact that there is a pension “ceiling” – limiting the level of pension payments, and even those with high incomes may be eligible for the maximum retirement allowance of a little more than 600 somoni (about 90 US dollars). Despite the exacerbating situation, the government occasionally resorts to popular, but not economically feasible measures to improve pensions under the current system. While maintaining this status quo in the near future, the pension system can come to its collapse and further worsen the condition of public finances as a whole.
 
New system of pension allowance can fail to meet the expectations of citizens
 
Aware of the risks, the Government of Tajikistan set the task of reforming the pension system. As a result, in 2010, there was adopted a new law “On Insurance and State Pensions” (1). Adoption of the law can be considered the starting point of the reforms, which began the transition to the new pension system in Tajikistan.
 
The law, passed in 2010, was obviously not sufficiently elaborated, and the government itself was clearly not ready for implementation of all the necessary measures accompanying the reform. For this reason, the law was put into effect only on January 1, 2013, and the text itself was repeatedly amended [1]. Last time the law was considerably updated in March 2015.
 
The new system is called “conventional-accumulative” and implies the division of responsibility for the pensions of the aged citizen between the government, the employer and the citizen. Now a pension is affected not so much by “seniority” and the achievement of a certain age, but more by a new concept of “pension insurance record” and the presence of certain assets on a special account of the individual citizen.
 
And if before the reform, the pension was calculated mainly based on the income of citizens over the past 2 years before retirement, now the income for a much longer period of time will matter, constituting the so-called “pension insurance record”. This record begins to accrue from the date of registration of citizens in the social insurance system and obtaining the individual number (SIN). The main principle of such a system is formulated in the law as follows: [1] – “matching the size of appointed insurance pensions accumulated by the insured person to the pension rights and the insured income in the system of compulsory pension insurance”.
 
This system is designed to motivate citizens to legalize their incomes and pay insurance premiums for higher pensions. Simultaneously, those without adequate insurance record (which the law defines as at least 300 months for men and at least 240 months for women except for privileged categories) will be able to rely only on a state social pension, the amount of which will depend on the so-called “Basic” pension established by the President of Tajikistan. It is obvious that the basic pension will take into account actual financial capabilities of the system and is projected at a very modest level. Currently, migrant workers and other categories of persons who do not have the required insurance period can rely on the social old-age pension in the amount of 60% of the prescribed amount of the basic pension (130 somoni, or about $ 20), i.e. 78 somoni (about 12.5 US dollars).
 
A simple arithmetic calculation allows to determine that, in average, men will need to have 25 years of pensionable service, which would be an impossible requirement for many categories of citizens, especially for the majority of migrant workers.
 
According to the law, the final date of transition to the new pension system is set to January 1, 2017. That is, the transition period will be completed within a year and a half. Thus, the process of pension reform is irreversible, and the time remaining to its completion inevitably decreases.
 
The question now is whether citizens are aware of the provisions of the new law. Now the size of future pension, to a greater extent, will be determined by a personal financial strategy of every citizen and active participation in the insurance system. Given the risks arising in connection with the transition to the new system, for certain vulnerable groups, primarily migrant workers, as well as other citizens who may have difficulty with the confirmation of insurance experience, a crucial aspect for the successful implementation of reforms and the acceptance of their results by society is effective communications.
No information on the reform?
 
The survey showed that citizens of all ages, including those close to retirement, regardless of their current employment, place of residence or education, virtually know nothing about the pension reform.
 
Of course, it should be noted that the study had a limited selection of data, there was not a large-scale survey, but focus groups were conducted in different regions, and the participants were selected so as to achieve maximum representativeness of the results. In addition, individual interviews with all types of media, as well as experts from the centers for sociological research complete the picture in a way that make it possible to conclude that there is not any communication strategy of the reform, which led to low public awareness.
 
The study found that the main reasons for citizens’ low awareness on pension reform is the lack of literacy in these matters and even the inability to correctly interpret the information that appears in the media. There are stereotypes like “our accountant will explain everything when the time comes”, certain post-Soviet mentality expressed in a paternalistic attitude toward the state – people traditionally have high social expectations and confidence guarantees from the government – “it will take care of us, it is its duty”.
 
In addition, the media also work ineffectively. Journalists do not have enough information not only on the part of state bodies, but also their own knowledge in order to prepare high-quality materials on the reform. Word for word comments composed in technical language do not allow most consumers to understand the information about changes, such comments cannot even raise interest in the topic among the population.
 
State bodies themselves provide information on pension reform to the media and citizens rarely and in an unprofessional manner. And, of course, there is not any full-fledged media campaign on the reform.
 
Modern communication channels such as the Internet are not used for the spread of this information either. Television and radio are used sporadically, but the format of transmission of information is not the most efficient – for example, standard interviews, rather than vivid talk shows.
 
The study confirmed a number of hypotheses about the absence of a communication strategy of the pension reform as such, and about its quite closed character. First of all, it concerns the involvement of stakeholders.
 
As it turned out that the Agency for Social Insurance and Pensions of the Government of the Republic of Tajikistan is, in fact, the only player in the reform process to date. After isolation of the Agency from the Ministry of Labour and Social Welfare, the agency was authorized to conduct policy in the field of pensions and other social insurance issues. Thus, the development and implementation of the pension reform is its function.
 
Meanwhile, earlier in 2010, when the first version of the law was adopted, there was an interdepartmental working group, which included representatives of various stakeholders, including civil society. At that time, these issues were under the jurisdiction of the Ministry of Labour and Social Welfare. The Ministry conducted a number of events for the media and public organizations and published a number of materials in their departmental newspaper. And in 2012, the Deputy Minister even talked on the national television, where he told about the main aspects of the reform.
 
After the formation of the Agency (in 2013), the number of publications in the media on the subject of pension reform has decreased significantly over the last 2 years. they can be easily counted on the fingers of one hand. The very nature of the materials is rather superficial, does not cause a feeling of importance and does not give the reader an opportunity to form an opinion about the technical details of the changes. One of the most singular examples of attempts to give more detailed information is the article “On peculiarities of formation of pensions” published in the newspaper “Asia Plus” in April 2014 [4].
 
According to the Agency of social insurance and pensions under the Government of the Republic of Tajikistan, its management and key employees were interviewed several times on radio and television. There is no doubt that this information is true. However, the simple fact is that the communication actions taken did not achieve the desired result, and public awareness of the reform is practically zero.
 
The reason is that rare reports unrelated to each other, especially transmitted via ineffective channels and formats do not reach the attention of the citizens and do not create “information field” around the issue. The main efforts of the Agency are focused on the technical aspects of the transition to a new system – the procedure for calculating pensions, etc., and the communication strategy remains in the background.
 
At the time the study began in the fall of 2014, the Agency did not even have their own website. The site was developed only in 2015 and is now available on the Internet. However, even a cursory review of the site leads to the conclusion that it is not fully used as an information resource and a rather poor example of one-way communication.
 
Details of the pension system are given among other information, without any special selection. All texts are mainly set out in the terms of the legislation, quite dry and are not accompanied by any elements of infographics or other user-friendly formats. The section of the website “Press Service” that was apparently designed for some interactive communication is empty. Interviews, publications, photos, videos, and other outreach materials are not there.
 
If poor communication activity of the Agency before the recent amendments to the law could be explained by the lack of necessary relevant legal framework – i.e. the law was there but everyone knew that it would be soon changed significantly, and there was no sense and the possibility to conduct an information campaign, now there are no such obstacles, it is obvious that solution of the problem rests more in the competence of the communications, the will and the resources to carry out the information campaign.
 
In addition, it should be noted that the Agency has been greatly mistaken in its assessment of the effectiveness of its own information and communication actions. Its views on the scale of public awareness are too much optimistic.
 
In reality, the situation is quite the opposite to the officials’ expectations. After a decline in the number of news reports on the reform during the last 2 years, there is an impression that no reform is happening at all. Not only ordinary citizens are unaware of the reform, but also the majority of the media, civil society organizations and experts, research centers, that is, even those citizens whose level of literacy and social activity is high by definition.
 
The initially apparent weak interest of citizens in pension reform is explained by their not sufficient understanding of the nature of change.
 
Findings:
 
The absence of a broad information campaign accompanying the pension reform leads to ignorance and non-preparedness of citizens to the reform. As a result, it can lead to the situation when a certain part of the citizens of Tajikistan, being retired in a few years, will fall into the category of “poor” people. This primarily relates to the first generation of pensioners, whose pension will be calculated exclusively under the new system, and vulnerable groups such as migrants and people without permanent employment.
 
The adoption of laws without a broad public discussion, without the involvement of experts and civil society, reduces the effectiveness of reforms and causes certain socio-economic risks.
 
Unfortunately, the pension reform is not an isolated example of inefficient and weak communications. Another striking example of weak communication in addressing the socio-critical tasks is the so-called “Anti-crisis plan” of government, developed in connection with the deteriorating economic situation in the country. At the beginning of 2015, the Ministry of Economic Development and Trade stated that the document is ready to be made public. More than six months later, the plan is also unavailable to the general public, which at least causes doubt in the quality of this document.
 
People’s understanding of the nature of the new pension system will hardly affect the course of reform, since only recently, there were adopted the latest changes and additions to the law. However, a broad discussion and clarification of the law will allow citizens to be prepared for such an eventuality and will make them at least look for alternative ways to ensure a decent old age. In addition, many citizens may change their personal strategy, preferring formal employment options, making out necessary documents in a timely manner, and others.
 
Recommendations:
 
Despite the inevitable transition to a new pension system, at this time, it is still very timely to conduct a large-scale information campaign to raise public awareness.
 
In addition, given the nature of the new system, it is necessary to give citizens the opportunity to monitor their particular personal pension prospects – access to data on their personal insurance experience, the size of pension savings and other relevant information.
 
The government needs to take into account that the positive effects of publications and discussions of documents, such as reform plans and other information of public interest, always outweigh the alleged risks. Active communications built under a competent strategy are able to attract even more intellectual and financial resources to provide the necessary support for reforms and sustainability of their results. The closed nature of the information inevitably leads to a decrease in public confidence and adds to the skepticism of citizens and experts to the initiatives of the government.
Konstantin Bondarenko, chairman of the NGO “Center of free market in Tajikistan”
 
 
The views of the author do not necessarily represent those of CABAR
 
Note: The full text of the report in English on the study “The pension reform in Tajikistan: How can we improve communication strategy” is available in the section “Analytics” on the website of NGO “Center for free market in Tajikistan» – www.freemarket.tj
 
References:
1. Law of the Republic of Tajikistan “On Insurance and State Pensions”, Ahbori Madzhlisi Oli of the Republic of Tajikistan, 2010, #1, Art. 19; 2011, #3 art.175; 2012, #8, Art. 831; #12, Part 1, Art. 1003; Law of RT as of 03.18.2015, # 1200.
2. Law of the Republic of Tajikistan “On Mandatory Pension Insurance” insurance and state pensions “AhboriMadzhlisi Oli of the Republic of Tajikistan
3. Faskhutdinov, H. (2011, January 03). Tajikistan moves to a system of pension insurance. DeutscheWelle. (Internet Source: http://dw.de/p/zt1o)
4. Mannonov, A. (2014, April 03). On peculiarities of formation of pensions. Asia Plus. (Internet Source: http://news.tj/ru/newspaper/article/ob-osobennostyakh-formirovaniya-pensii )
5. Tompson, W., Price, R. (2009). The political economy of reform: Lessons from pensions, product markets and labour markets in ten OECD countries. Paris: Organisation for Economic Cooperation and Development. pp. 49-60
6. WPP. The Government & Public Sector Practice. (No date). Engaging citizens with major pension reform. (Internet Source: http://www.wpp.com/govtpractice/our-work/case-studies/mindshare-pension-reform/)
 

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