Georgia’s Pension Fund makes the first investment with accumulated money

By Natalia Kochiashvili

Friday, March 6

To accelerate investment processes and maximize real returns on inflation (in terms of inflation), the Investment Board in January 2020 approved a transitional investment policy document for cash and cash equivalents only.

On January 16, 2020, Director of the Georgian Pension Agency, Levan Surguladze, officially resigned, and his deputy, Giorgi Chichinadze, was appointed acting director. In parallel, a public competition is underway to elect a new director of the agency.

The Pension Agency of Georgia has made its first large scale investment following the decision of the Investment Board.

According to the acting director of the Pension Agency, Giorgi Chichinadze, within the framework of the powers granted by law, the Investment Council has already invested GEL 560 million and has invested the funds in the deposit certificates of highly rated Georgian commercial banks.

A Certificate of Deposit is a bank deposit and the Bank must pay the Certificate Holder the amount stipulated in the Certificate on the day required by the Certificate.

Chichinadze says that bank deposits are the most low-cost and the least risky financial instrument. According to him, several financial institutions are negotiating within the investment process that will be followed by additional statements from the Investment board.

According to the agency, the money was invested with high-interest rates and its annual rate is 9,9% instead of 14,9%. The investment period is 5 years.

According to the acting director of the pension agency, the investment will almost double at the end of the investment period, which is a significant benefit for all participants of the pension scheme.

According to the agency, these investments were made by David Tsiklauri, a member of the Investment Board of the Georgian Pension Agency, who was appointed by the same board as acting Chief Investment Officer of the Pension Agency for one month.

"We believe this decision will safeguard the interests of participants and, given current market data, offer the best balance between expected risks and expected returns (about 4% difference with five-year government bond yield, which is 9.5%)," the pension agency explained.

There are only three categories of assets in which a pension agency's money can be placed. The categories include the current deposits and certificates of deposits of Commercial Banks of Georgia.

Also, the investment policy defines the limits that must be observed during the investment process. Specifically, an investment policy document prohibits more than 40% of certificates of deposit in one commercial bank.

“To avoid the risk of concentration in the same commercial bank, investing more than 20% of bank capital in deposit certificates is not permitted,” reads the investment policy document.

It also says that the investments should only be made in financial instruments whose issuers have been evaluated by international rating agencies - Standard & Poors, Moody's, Fitch and Scope Ratings. However, the minimum valuation should be CCC and higher.

The Pension Agency says that their choice of certificates of deposit was suspended because it has a higher average yield of 14.9% than other financial instruments.

The Pension Agency claims that the Pension Agency's main investment policy document has already been developed and has been sent to the National Bank of Georgia for verification of compliance.

The accumulated pension system came into play in Georgia in January 2019. It is mandatory for legally employed people under 40, meaning they will be enrolled automatically. For the self-employed and those above the age of 40, enrolment in the program is voluntary.

The pension savings system applies to Georgian citizens, foreign citizens living in Georgia with permanent residency in the country and stateless persons who are employed or self-employed and receive an income. This system applies to employees of both the public as well as private sectors.

The total amount of contributions made to the pension agency as of March 2020 is GEL 615 million. The size of the state pension fund is increasing by an average of 50-60 million GEL from month to month.

The Pension Agency of Georgia saves funds deposited by citizens in the National Bank of Georgia and commercial banks. As of March 2, 2020, the total amount of citizen contributions to the agency is GEL 615 million.

The pension contributions of public servants are placed in the National Bank of Georgia. The money is transferred to the account opened by the Pension Agency at the NBG and the NBG updates and publishes statistical information about it daily.