The Milli Majlis has adopted, in its third and final reading, amendments to improve pension appointment mechanisms for civil servants, military personnel serving in the Ministry of Defense system and people receiving pensions based on their terms in office, while introducing a unified insurance-based approach.
Operative Information Center-OMM reports that a bill amending laws on diplomatic service and other legislation was discussed at today’s plenary session of the parliament’s autumn session. The legislation includes amendments set out in Law No. 1074-VIQD, dated Dec. 22, 2023, concerning service in state tax bodies, labor pensions, the status of military personnel, military service and military obligations.
The document notes that Azerbaijan’s labor pension system is based on insurance principles: pension amounts are calculated according to the pension capital accumulated by each individual. Over the past 20 years, the link between pension provision and salary was gradually removed, and pension amounts began to be determined by accumulated capital. Pension increases are now carried out through a unified indexation method.
This approach has helped improve pensioners’ social welfare, provided a basis for regular increases in minimum and average pensions, and strengthened the financial sustainability of the State Social Protection Fund.
However, some pension payments remain based on salaries at the time of retirement rather than social insurance contributions. This can hinder public-sector wage reforms and result in unequal pension amounts.
Steps are therefore being taken to improve mechanisms that are not based on social insurance principles and to bring pension eligibility conditions into line with current requirements. The next step, alongside public-sector wage reforms, is to improve pension arrangements for civil servants, military personnel serving in the Ministry of Defense system and people receiving pensions based on their terms in office, and to apply a unified insurance-based approach.
Under the bill, the proposed changes to the pension arrangements for civil servants include the following:
As noted in the document, when people in this category retire, their pension amounts are based on subsequent salary increases rather than the pension capital accumulated in their individual accounts. As a result, the pensions may not be proportionate to the capital accumulated.
Calculations indicate that salary increases make it possible to accumulate sufficient pension capital.
Under the proposed approach, the link between pension amounts and state salaries will be removed. Pension amounts will instead be calculated on the basis of pension capital recorded in individual accounts. The insurance mechanism will be strengthened, and these individuals will continue to receive pensions under the general rules, based on their recorded pension capital. In addition to the pension, they will receive a monthly pension supplement, rather than the length-of-service addition to a labor pension provided for under current legislation.
The monthly pension supplement for civil servants will be set according to administrative classification. For people receiving pensions based on their terms in office, it will be set at a fixed amount for specific positions.
The proposed reform will eliminate disparities in civil servants’ pension provision. It will also enable pensions and supplements to be assigned proactively, electronically and without recipients having to apply to administrative bodies.
The document explains the proposed changes to pension arrangements for military personnel serving in the Ministry of Defense as follows:
Military personnel currently retire on the basis of their last allowance. As with civil servants, linking their pensions to their allowance means that increases in monetary compensation can produce pension amounts disproportionate to accumulated pension capital. The current arrangement also encourages military personnel to retire rather than remain in service longer.
Under the proposed approach, the link between pension amounts and allowances will be removed. Pensions will be calculated on the basis of the pension capital recorded in individual accounts. The insurance mechanism will be strengthened, and pensions will be assigned and paid under the general rules based on the capital recorded in each individual account.
In addition to the pension, a fixed monthly supplement will be assigned instead of the length-of-service addition to a labor pension provided for under current legislation. The amount of the monthly supplement will be determined according to military rank.
The bill also outlines proposed improvements to the indexation of labor pensions and pension capital:
Currently, all assigned labor pensions are indexed equally each year, in line with the annual growth rate of the country’s average monthly nominal wage, regardless of the pension amount. At the same time, pension capital recorded in insured individuals’ accounts is indexed once a year in line with the annual consumer price index.
The existing mechanism results in larger increases for people with higher pensions. The bill therefore proposes indexing labor pensions and pension capital on a differentiated basis rather than applying a single rate.
Under the reform, higher pensions and larger pension capital amounts will be treated differently, while lower pensions and smaller pension capital amounts will continue to be indexed in full.
The document says the changes will further strengthen the financial sustainability of the State Social Protection Fund and enable increases to lower pensions, including regular reviews and increases to the minimum pension.
Following discussion, the bill was put to a vote and adopted in its third reading.
