INFLATION RATE GEO 3.00% Historical average (nominal) return on Stocks (MSCI World Index) 7.96% Historical average (nominal) return on Government Bonds (WGBI) 6.24% MANAGEMENT FEE 0.50% Expected yearly real return - medium risk (50 bonds / 50 stocks) 5.0% Life expectancy at
60 - WOMEN 21.12 Life expectancy at 60 - MEN 16.54 Life expectancy at 65 - WOMEN 16.97 Life expectancy at 65 - MEN 13.34 To calculate the expected pension payment at the moment of retirement, expressed in the current GEL, we proceed in the following way. We take the monthly earnings net of taxes and reconstruct gross monthly earnings dividing that amount by 0.8 to obtain the gross (before taxes) amount. We apply the appropriate contribution rates for employee, employer and government (if an individual is self-employed, he/she pays both the employee and the employer shares) and calculate the annual contribution from each source. Because the thresholds set by the government to define its contribution (2% until 2,000 GEL per month and 1% from 2,001 to 5,000) are set in nominal terms, the real value of the threshold declines with time. We take that into account as we compute the government contribution. At the same time, we assume wages keep their real value (i.e., they grow at the inflation rate). We cumulate (yearly) contributions and returns on the invested amount, from the first year to the year of retirement, subtracting at the same time the management fee (0.5% of the total value of assets at the end of the previous period). The return on investment is estimated as the real return on a portfolio composed of 50% of international government bonds and 50% of international stocks. The benchmarks used to estimate the returns of the two asset categories are the World Government Bond Index (WGBI) and the MSCI World Index. To determine the expected monthly pension payment from the pension fund at the moment of retirement the total value of the assets at the moment of retirement is divided by the life expectancy at the moment of retirement (expressed in months).
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