BAKU, Azerbaijan, June 24. The private pension fund can boost the capital market in Azerbaijan, Secretary General/CEO of PensionsEurope, Matti Leppala, told Trend in an exclusive interview on the sidelines of the 11th Azerbaijan International Insurance Forum held in Baku.
"The development of a multi-tiered pension system in Azerbaijan, especially the formation of the second and third pension pillars, can both strengthen the sustainability of pension provision and attract long-term investment resources to the country's financial market," he explained.
According to him, one of the main similarities between the Azerbaijani and Swedish pension systems is the introduction of nationally determined contribution (NDC) accounts in the first pillar.
"This is one of the reforms that has been successfully implemented in both countries and has yielded positive results. At the same time, there is great potential for expanding the funded pension system in Azerbaijan. However, the main issue is how to attract people to this system. Although there were opportunities for voluntary payments in the past, interest in this was limited. In Sweden, payments to the funded part are more mandatory, and there are incentives for additional voluntary savings. In this context, it's important that the savings process is more accessible and encouraging in Azerbaijan," he noted.
Leppala pointed out that a financially sustainable multi-tier pension system increases the stability of the overall system and reduces the burden on public finances.
"Transfers are made from the state budget to the pension system in Azerbaijan. A multi-tier model can help reduce this pressure. In addition, the income from investments of pension funds strengthens the financial sustainability of the system. Against the backdrop of an aging population and changing demographics, people's accumulation of additional funds for their pensions during their working life increases both the adequacy and stability of pension provision in the future," he emphasized.
According to the head of PensionsEurope, the creation of private pension funds can also make a significant contribution to the development of local capital markets.
"The experience of many countries shows that after the formation of private pension funds, they invest more in local capital markets and local companies. Investors and funds usually prefer the economy they know better. Although in some countries there are legal requirements in this regard, even when these restrictions are later removed, a significant part of the funds is still directed to local markets. This approach has yielded positive results in terms of economic development and deepening of capital markets in many countries that have created private pension funds," Leppala added.
