The plans of Georgia's Pension Agency to invest large parts of retirement funds in high-risk endeavors has left many of the country's citizens anxious about their savings.

The agency, which was established in 2019 as a part of a major pension reform, has given little time for people to opt out and direct their savings to lower-risk investments.

This caused widespread anger and a sense of insecurity in a country traumatized not that long ago by a catastrophic financial crisis that wiped out the savings of much of the population.

In August, the agency, which is charged with managing and investing pension assets, directed the savings of all scheme participants under 40 to higher-risk portfolios. The funds of those aged 40-50 years old went to medium-risk investments and the savings of those over 50 were put into lower-risk portfolios.

"Our main investment goal is to beat inflation," Goga Melikidze, Chief Investment Officer of the agency said as he defended the changes in an online presentation on August 22. "If you do not invest savings, inflation will eat them."

The key difference between the portfolios is the shares of investment types. Lower-risk portfolios, which have been exclusively used for investments for the past 5 years, are mainly made of bank deposits in the national currency (up to 60 percent), while fewer shares go to securities and foreign stocks. Risk grows along with the increase in the share of foreign stocks, which reaches up to 55 percent in high-risk portfolios, while the medium-risk package offers a more diverse mix of high and low-risk investments. 

(The foreign stocks reportedly include those of Apple, Google, Samsung, Louis Vuitton, Toyota, and Nestle. Individual participants, however, won't be able to see where exactly their savings were invested.)

The agency gave risk-averse pension scheme participants one month - from August 6 to September 6 - to switch to their desired investment plans or combine portfolios. Once that window closes, they will have to wait for a year for another chance to switch.

The short notice, tight deadline for opting out, and general distrust in financial policies left many in panic.

Georgia passed an ambitious pension reform in 2018-2019. The new individual saving scheme is based on the 2+2+2 contribution principle where 2 percent of a person's gross monthly salary goes to their individual pension account, while employers and the state each contribute an additional 2 percent of the salary. The new scheme by default involved all women under 55 and men under 60, while those already over 40 in 2018 were allowed to opt out.

(The retirement age in Georgia is 60 for women and 65 for men.)

The scheme promises solid returns after retirement: according to the estimates of the official pensions calculator, a 25-year-old joining the scheme with a steady gross income of 1,000 lari  per month (close to the recently estimated median income in Georgia and currently equivalent to about $380) can count on a pension greater than 3,000 lari ($1,150 in today's money) once they retire. 

This looks like a dream compared to the fixed pensions currently being paid out, which range from 295 to 438 lari ($110-170) per month. These pensions, while seeing gradual growth over the decades, have proven insufficient to prevent old-age poverty and debt crises that have long plagued Georgia's senior citizens. 

But many view these promises with skepticism considering inflation trends, general distrust toward public agencies, and, most importantly, the troubled fate of previous savings schemes. 

Much of the savings Georgians accumulated in Soviet times evaporated during the chaotic transition period that followed the country's dissolution and the restoration of Georgian independence in the early 1990s. Georgians never had the chance to retrieve those savings, worth an estimated 672 million lari ($250 million in today's money) in total. The bitter experience has fed into a broad distrust of financial institutions in the country.

"There is less trust towards formal systems," Georgia's National Bank said in its financial education strategy document published last year. "Only a very small portion of the population (11 percent) have savings in the form of bank deposits and a large part (57 percent) stores their savings at home as cash or entrusts them to family members (25 percent)."

When the pension reform was introduced five years ago, many regarded those savings as lost assets from the beginning. These recent changes have made anxious those still hoping for returns in their retirement but unwilling to gamble. But applying to switch back to lower-risk plans has proven inconvenient amid tight deadlines and a complex procedure that requires showing up in person to government offices in the midst of the vacation season. 

Pension Agency officials do not share the anxiety. 

"In the long-term perspective, stocks are the best way to increase my savings," the agency's Goga Melikidze said. Citing upward foreign stock market trends, the official argued that despite more exposure to financial shocks and higher price volatility, investments in foreign stocks are most likely to bring solid returns in the long run.

According to Melikidze, the pension fund manages and invests savings like any commercial bank, and the risks of asset loss have been minimized in each of the three portfolios. The official also maintains that the government has no say in the investments managed by the Investment Board, an independent unit composed of foreign experts and supervised by the National Bank.

However, the National Bank's independence from the authorities has been questioned amid recent controversies that brought a government loyalist in as acting head. Earlier, the government entertained the idea of using pension funds to invest in large state-sponsored infrastructure projects such as the strategically important Anaklia deep sea port. 

The Pension Agency, on the other hand, has cited its inflation-beating profits as proof of its smart investment strategies: according to the agency, over the past five years the investments from savings of around 1.4 million participants saw significant profits despite the major pandemic- and Ukraine war-related financial shocks and over 35 percent of inflation during this period. 

The real profit, which accounts for the effects of inflation, amounted to 11.7 percent, leading the total pension assets to reach 3.76 billion lari ($1.5 billion) in July.