Lowering Pension Age a Costly Move

The government has voted to reduce the retirement age in Kyrgyzstan by three years, a populist move that NBCentralAsia analysts say the country can ill afford.



On March 26, parliament passed a law to reduce the age of retirement in Kyrgyzstan from 58 to 55 for women, and from 63 to 60 for men. The vote overrode a presidential veto on the law.



Out of a total population of five million, Kyrgyzstan has 560,000 retired people. The average pension is currently 976 soms a month, around 25 US dollars.



A national pension reform strategy for 2003-2010 made no provision for lowering the retirement age. But parliament went ahead with the change anyway, and advocates argued that it would be affordable as long as state pension funding was better managed.



“We need to use the reserves held in the Social Fund more effectively,” said deputy Temir Sariev. “There have been cases where the funds have been used for other purposes.”



Some parliamentarians, however, criticised the decision as a populist measure.



“Many deputies understand that it is too early for Kyrgyzstan to reduce the retirement age at the moment. But they [still] voted in favour, to avoid criticism from the electorate,” said member of parliament Kanybek Imanaliev.



Sapar Orozbakov, director of the Bishkek-based Centre for Economic Analysis, is among the economists who warn that having more pensioners to look after and fewer people in will be a burden on the country’s weak economy.



He believes that while the Social Fund may be able to find the money to pay pensioners in the short term, the cash will run out very quickly.



“Reducing the [retirement] age means one of two things – either increasing the social insurance contributions paid by businesses, which are already too high and are the main reason why so many firms operate in the shadows economy; or else freezing pensions at their present rate,” said Orozbakov.



Nina Gorbenko, an official from the Social Fund, confirmed that the latter option was likely, so that pensions would not go up any time soon.



“We have been increasing basic pensions and insurance by an average of 10-15 per cent twice a year since 2004. Now that the retirement age has been reduced, we are unlikely to be able to raise this amount any further,” she said.



Deputy Sariev suggests that the Social Fund’s assets could be increased through banking-sector or share investments, while Elmira Temirbekova, the Fund’s head of public relations, says tougher measures should be taken to force employers to pay in the money they owe.



The Social Fund estimates that employers currently owe it more than one billion soms, or about 49 million US dollars, in unpaid social contributions.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)