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After the government salary increase, the move that is expected to be taken soon by the government is an increase in pensions, which come in the form of annual indexation based on the food basket, but also in the form of bonuses, such as the two such awards given last year.
The newspaper learned that the expected indexation is expected to take place in October and will largely be in line with last year, although the annual inflation rate will not exceed 3%. But one option still under discussion is differential indexing.
As part of the pension reform, which is expected to be finalized by the end of this year, experts are discussing options for increasing minimum pension benefits using indexation. For many years, pension indexation has been at a low level, reaching a maximum of 3%. Therefore, in recent years, due to unusual circumstances such as the pandemic or the price surge caused by the war in Ukraine, this index has increased significantly (as shown in the table below).
However, for low-pension recipients, this increase is less reflected because it is based on the amount they receive rather than a gradual increase. Nationwide, the number of people who receive pension insurance, sick and injured personnel, family pensions, etc. in urban and rural areas exceeds 767,000, as shown in the table below.
Differentiated Index
Experts in the field are discussing a formula that would allow a lower pension to grow more in value than a higher pension. Currently, indexation refers to the percentage of inflation in the pensioner basket of goods. Last year, an indexation of 8.6% (pensioner inflation) was applied, but converted into value, the gains of lower pensions were much smaller than those of higher pensions. For example, a pensioner in the village who received 10,000 alleks a month would have received only 860 alleks more by October 2023, while a pensioner who received 30,000 alleks a month received an additional 2,560 alleks, i.e. three times more.
One option is a fixed value increase. Another option being discussed is the indexation of pensions in line with the average wage growth. According to INSTAT’s decision based on international methodology, pensioners are considered poor if the monthly pension paid is less than half of the national average wage. This gap has been deepening in recent years and has accelerated further this year. In 2023, the average pension will account for only 26% of the average monthly gross wage, compared to 31% in 2018.
In 2022, the average pension in the city was 44.4% of the average net salary and 35% of the gross salary. In 2018, these rates were 52% and 41%, respectively. The data show a rise in inequality between social classes, in this case pensioners and employed people. This gap is likely to widen in the coming years, as the market suggests that new conditions caused by labor shortages lead to higher wage growth.
After a decade of weakness, wages are starting to rise, albeit modestly. The average wage in the country is 42% higher than before the pandemic, increasing from 52,380 ALL to 75,025 ALL by the end of 2023. Over the same period, the average pension level increased from 16,256 ALL in 2019 to 17,306 in the first six months of this year, an increase of only 6%.
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