Key concepts: founder, contributor and participant
Non-state pension provision of physical persons means the regular payment of monetary funds — pensions — to individuals, at the expense of pension contributions of physical and legal persons and of investment income. The activity carried out for this purpose includes the establishment of pension schemes, the accumulation and recording of pension contributions, the formation of pension accumulations and the regular payment of pensions to individuals. A non-state pension scheme is a system of relationships between physical and legal persons in this sphere — and it is within the scheme that the participant’s rights and obligations arise.
The law defines the subjects of the scheme: the founder is a legal person which establishes a pension scheme and provides physical persons with non-state pensions in accordance with the procedure set by the scheme; the contributor is a physical or legal person which pays a pension contribution for the benefit of the scheme’s participant; the participant is a physical person for whose benefit pension contributions are paid and a pension is granted. A pension accumulation is the funds recorded in the nominal pension account of a participant or participants, and the nominal pension account is the form in which the movement of these funds is recorded. A pension contribution is the contribution established by the scheme which contributors pay for the purpose of non-state pension provision.
Distinct roles in the scheme’s infrastructure belong to the asset management company — a commercial organisation which, on the basis of an appropriate licence, manages and invests pension accumulations — and to the specialised depositary, which accepts and holds documented securities and records the non-documented securities that form part of the corresponding assets of the accumulations. The assets permitted to cover the accumulations are determined under the rules of the National Bank of Georgia. Participants’ interests are defended by the founder’s supervisory board, the organ that oversees the provision of citizens with non-state pensions. The law also defines a subsidiary enterprise — a legal person in which the founder owns 50 percent or more than 50 percent of the share (voting shares, participation interest), or, where the formation has no legal status, controls it — and a branch, a structural subdivision of the founder in which the activity defined by its charter, or a part of it, is carried out directly.
Ownership of the pension accumulation and payment of the pension
The participant of a pension scheme is considered the owner of the nominally accounted amount — in other words, the accumulation recorded in his name belongs to him as his property. The only exception is the funds transferred to the fund of accumulations for the payment of permanent pensions. This means that the participant has a proprietary interest in his accumulation, and the law recognises that interest with the status of an ownership right.
The pension is granted to the participant after he reaches the pension age established by the legislation of Georgia, within one month from the submission of the application. A pension may also be granted before pension age is reached — in the case where the participant has partially or completely lost his working capacity. The law itself does not set the exact boundaries of pension age: they are determined by other legislation, so in a concrete case establishing the age criteria requires reference to those other norms.
The pension account, leaving the scheme and transfer to another scheme
The founder is obliged to open a pension account for every participant of its pension scheme, on which the accounted and paid amounts of pension accumulations are recorded. For the participant, the account is the main reference point of his financial interest: it reflects what contributions have accumulated and what has been paid in his benefit.
A participant’s leaving the pension scheme is understood as the early termination of the contract: as a result, the obligations defined by the pension scheme towards the departing participant cease, and the departing participant’s nominal pension account is closed. A participant’s transfer to another pension scheme means a move to the pension scheme of another founder or to another pension scheme of the same founder. The difference between the two matters: in the first case the relationship with the scheme ends altogether, while in the second the participant changes scheme — moving to another founder or to a different scheme of the same founder.
The participant’s information rights and liability for delay
The founder is obliged to provide every participant of the pension scheme with written information once a year — about his individual account, about changes in the tax system, in asset management companies and in specialised depositaries, and about the results of the audit inspection of the founder’s activity. This gives the participant the opportunity to see annually the state of his own account and to learn of significant changes connected with the management of his accumulation.
Openness of information also has its limits: the pension scheme rule and the reporting documents are not confidential, yet information about the participant’s account may be given only to the tax authority, within the framework of international agreements — in particular, the agreement concluded for the purpose of implementing FATCA and the multilateral agreement on the automatic exchange of information on financial accounts (CRS MCAA) — and the tax authority may in turn pass that information to the competent authorities determined by the corresponding exchange agreements between the relevant jurisdictions.
If the founder fails to provide the participant with information, or provides it late, it is liable before the participant for each day of delay of the information-supply period in the amount of 0.01 percent of the participant’s pension accumulation, and it does so at the expense of its own property. Failure to submit an account to the National Bank of Georgia, or late submission, entails liability established by the legislation of Georgia.
Protection of participants’ rights and property interests
The law gives the participant a range of protective mechanisms. Where the founder fails to fulfil the obligation of the next pension payment, or does not have sufficient assets to pay pensions for that period, the participants are considered creditors of the founder and are entitled — personally, or through a member of the supervisory board or another representative — to file a lawsuit in court to have the founder declared insolvent, that is, bankrupt.
In a professional pension scheme additional guarantees also apply: on the liquidation of the employer-contributor, the participant’s claim for the payment of pension contributions in his favour is treated as a claim for labour remuneration and is satisfied in the manner established by legislation. The participant is also entitled to sue the employer-contributor for violation of the procedure defined by the contract. By decision of the supervisory board, any of its members, or a representative of the workers’ authorised organ, may defend the participants’ interests against the employer where their rights are restricted in the course of non-state pension insurance and provision. The participant may also bring a lawsuit in court against the founder, the asset management company, the specialised depositary or any other person, because of a restriction of his rights in the course of non-state pension insurance and provision.
For systemic protection, the law imposes two further obligations on the founder: it must create its own reserve in accordance with the normative established by the National Bank of Georgia, and, for the protection of participants’ interests, it must participate in guarantee, compensation, insurance, reinsurance or other funds, in accordance with the rules established by the legislation of Georgia. If your rights were restricted while you were participating in a pension scheme, or you need to prepare a lawsuit, use the assistance of an experienced lawyer — the Legal.ge team is ready to defend your property interests.