If the pension system reform is delayed, indexation itself will be at risk in a few years - Otabek Bakirov

If pension system reforms are delayed, the possibility of indexing pensions in a few years may also be at risk, economist Otabek Bakirov warned.

In an interview with the Institute for Fiscal Analysis on proposals for pension system, social tax and other economic reforms, Bakirov noted that pension increases are currently being implemented on the basis of the "residual principle". This means that only after taking into account budget opportunities will the amount of pension increases be determined.

"In 2026, it was announced that tariffs would increase by an average of 10 percent, while pensions would increase by 7 percent. The numbers themselves show the situation. If we do not restore the balance of the pension system, tariffs will continue to grow at a high rate, and increasing pensions and social benefits will become a secondary issue," he said.

The economist cited the situation in Kyrgyzstan as an example. According to him, from October 1, 2026, pensions in the neighboring country will be indexed by 20 percent. Until now, average and minimum pensions in Kyrgyzstan have been lower than in Uzbekistan, but now this indicator may be left behind.

"They have stabilized the insurance part of the pension system. But we are not making the necessary decisions in a timely manner. If the current situation continues, taking into account the increase in the number of pensioners, budget opportunities and economic growth rates, it may become difficult to index pensions even at the inflation rate in two to three years," Bakirov said.

**"The gap between the income and expenses of the Pension Fund has reached $ 2 billion"**

Bakirov noted that the main problem in the pension system is that the gap between the income and expenses of the Pension Fund is increasing every year.

"The difference between the pension fund's income and expenses has reached almost $2 billion. This amount is covered by budget transfers. But this practice cannot be continued indefinitely. The fund must become a system that can cover its expenses from its own income," he said.

In his opinion, there are two ways to achieve this: increase the social tax rate or expand the tax base. Bakirov positively assessed the choice of the second option.

"The easiest way is to increase the social tax rate from 12 percent to 15 percent. But this will not benefit the economy, but on the contrary, will reduce the number of taxpayers and lead to the need for new benefits. Therefore, the right decision was made to expand the base, not the rate," the economist said.

The expert noted that the proposals under discussion should not be focused only on the social tax of self-employed citizens.

"It's easy to make a headline that the social tax of the self-employed will increase four to five times. In fact, the main idea is different: everyone should pay social tax according to the same rules. Only then will the pension system be balanced," he said.

During the conversation, the proposal put forward by the Institute of Fiscal Analysis to calculate pensions based on the last 20 years of income was also discussed.

Bakirov said that until Uzbekistan switches to a fully funded pension system, pension calculation formulas will continue to change.

"Until we switch to a system where each citizen forms his own pension, the general "win" principle will remain, and the criteria for calculating pensions will also change," he said.

In his opinion, the final effect of taking into account 20 years of income will depend on how citizens' incomes have changed during their working lives.

The economist also drew attention to trends in the labor market. He said that for most employees, incomes increase from about 25 to 45 years of age, and then they remain almost unchanged or begin to decline.

"If the retirement age is gradually increased to 65 in the future, incomes may not increase significantly until retirement at the age of 45. Due to the impact of artificial intelligence and technology, it is becoming increasingly difficult to increase incomes, especially for employees after the age of 40-45," Bakirov said.