The possibility of raising the retirement age in Uzbekistan by several years is actively being discussed: for men, it is proposed to increase it by 3 years, and for women—by 4 years, which will lead to payments starting at 63 and 58 years old, respectively. For people who have worked for a long time and made mandatory contributions, this change is significant. In this regard, questions arise about the retirement age in other countries, the fate of pension contributions during working life, the size of future payments, and possible models for functioning of the pension system.
Doctor of Economic Sciences Ravshanbek Dalimov analyzed the structure of the pension system, highlighted who provides payments to current pensioners, and predicted changes that may occur in 15–25 years due to the changing ratio of the working and pensioner population.
How the pension system is structured
The pension system is a complex of financial institutions, such as pension funds. Within this system, employees make payments during their working life and receive pension benefits after finishing work, provided they have seniority, which the International Labour Organization (ILO) defines as 40 years. Thus, according to this standard, a person starts working at 20 and retires at 60.
Establishing a calculation period of 40 years was related to considering the life expectancy—the difference between average life expectancy and retirement age. In the past, people lived an average of 65–67 years in the 20th century, but now life expectancy has significantly increased. The higher the standard of living and wealth, the longer people live, as observed, for example, in Japan. The increase in life expectancy requires the pension system to increase the volume of funds.
Currently, the average life expectancy in Uzbekistan is 75.4 years, which exceeds the 1991 figure by 9 years, and this is one of the reasons for the proposal to raise the retirement age. The global trend of increasing the retirement age began in the late 1990s, moving towards the age of 63–65 years (as in Belarus, Russian Federation, France, and Japan) or even 67 years (in the EU and the USA). Although China still maintains retirement ages of 60 for men and 54 for women, it is expected that the retirement age there will also be raised by 2050.
The pension system includes one or more funds that accumulate workers' contributions and then pay pensions to elderly citizens upon reaching retirement age. A natural question arises about the fate of these contributions over 40 years, and the answer determines two main models of pension systems: redistributive or funded.
Redistributive pension system
The redistributive system, also known as the solidarity pension system or PAYG (Pay as you go) abroad, collects contributions from workers as a fixed percentage of their salary during employment. In Uzbekistan, the tax rate for the pension system is set at 12% for businesses and 25% for budgetary organizations. The collected funds are distributed among those entitled to receive a pension; that is, the contributions of some are used to pay pensions to others. Therefore, the system is redistributive.
To receive a pension in this system, certain rights are provided, depending primarily on work experience and the period of contribution before retirement (10–20 years, taking inflation into account). The ILO has established a minimum pension amount of no less than 40% of the average salary for the accounted period, which emphasizes the importance of knowing the level of salaries of workers near retirement age.
The effectiveness of the redistributive system directly depends on the timeliness of contribution receipts, which reflects the state of the country's economy, as well as the ratio coefficient of working citizens to pensioners. In Uzbekistan, this coefficient is 1.5, meaning that the contributions of three workers cover the payments to two pensioners. However, this is not enough, which demonstrates the current coverage of the pension system. For example, with a salary of seven million soms for three people, the total contribution will be 2.52 million and 5.25 million soms (at rates of 12% and 25%), which clearly does not cover the needs.
As of 2026, there are 4.4 million pensioners in the country, and their number increases by 160–180 thousand people annually. At the same time, the number of workers making contributions does not exceed six million people. This deficit is compensated by state transfers to the pension system, which amounted to 20 trillion soms in 2025. According to IMF forecasts, if current trends continue, the deficit will reach 38 trillion soms by 2030.
The population of Uzbekistan is at least 39 million people, of which about 14 million are employed in the economy, and another 3–4 million work abroad. Consequently, the actual coefficient should be in the range of 3.18 – 4.09 (14/4.4 – 18/4.4). The current coefficient of 1.5 indicates the need to expand the coverage of the pension system to all able-bodied citizens and increase the total volume of contributions, either through mandatory or attractive participation of all citizens in the pension system.
For comparison, the coefficient in Kazakhstan is 4.95, in Chile—4.7, in Sweden and Denmark—3.0, and in the USA—2.8. The highest coefficient is observed in African countries (from 7 in Tunisia and Morocco to 21 in Uganda, Niger, and Côte d'Ivoire). In the Russian Federation, on the contrary, due to population aging, the coefficient is currently 1.2, which is a very low indicator for the effective operation of the solidarity system.
Analysis shows that in 15–25 years, when the payment period arrives for current 30–45-year-old citizens, the number of workers will equal the number of pensioners, putting Uzbekistan's redistributive system in a position of fund shortage, despite the high birth rate in the country, which increases the population by more than 700 thousand people annually.
Similar studies are being conducted in many countries, and it becomes clear that in developed countries, the problem of pension payments is becoming more acute already due to declining birth rates. Moreover, in economically developed countries of the last two decades (such as China and Singapore), the pension system will inevitably face a crisis in about 25–30 years due to population aging, when there will be more pensioners than workers.
To mitigate the financial burden on redistributive systems, many countries since the mid-1990s have begun to introduce the funded principle of forming pension contributions, fully or partially.
Funded pension system
The funded system (Fully Funded Pension Scheme) assumes that workers' contributions are accumulated and accounted for in pension funds. These funds are indexed through investments in various bonds, and upon reaching retirement age, pensioners are paid on an annuity basis. An annuity payment means that the total accumulated amount is divided by the life expectancy and paid to pensioners in equal monthly installments. Pension funds can be state, private, or mixed, and their goal is to preserve and increase funds for future pensioners.
There are over 700,000 funded pension funds only in the USA, and over 30,000 in Europe. State-funded pension funds are widely used in ASEAN countries and Kazakhstan. There are 7 private funded pension funds operating in Chile.
Chile was the pioneer of the funded system, where the redistributive model is completely absent, and contributions amount to 10% of the worker's salary. Kazakhstan is the second country to implement this model, also with a deduction of 10% of the payroll. Other countries have integrated the funded system as an additional element to the existing redistributive one.
Advantages of the funded pension system
The funded pension system has a number of positive characteristics and influences the financial system: monthly savings are deposited into pension funds, which invest them in the country's financial system, mainly through bank deposits, municipal, and government bonds. At the same time, financial instruments are subject to careful regulation by the Central Bank (currently, the legislative framework and tools are absent in Uzbekistan).
This system promotes the development of the bond market and the overall financial market of the country, giving it high liquidity. Furthermore, the economy is saturated with low-cost and high-demand capital, which allows for the implementation of long-term projects with a payback period of 10–20 years, including mortgages at moderate rates of 4–5%. Overall, the country has sufficient domestic capital, which is replenished monthly with an indexation period of 40 years.
Thanks to this system, pensioners receive decent payments. In the USA and other OECD countries, the accumulated pension can amount to several hundred thousand dollars as a lump sum or be paid out in high monthly annuity payments.
The funded system does not depend on the ratio of workers to pensioners, since each receives income based on their own accumulated capital, which was indexed as a result of their working life. A properly structured funded pension system is capable of solving the poverty problem by fully providing pensioners with everything they need, and also stimulating their desire to travel in old age, which is noticeable in developed countries.
