Pay now, enjoy later: a new accumulated pension system raises some concern

The compulsory accumulated pension system, which will be introduced in Armenia in January 1, 2011, concerns not only citizens but also some specialists.

Harutyun Mesrobyan, an expert in governance, told journalists today that even though the government makes its citizens invest 5 percent of their wages into the accumulated pension funds it does not provide a guarantee that, for example, in 25 years, a citizen will get his/her money back.

Currently in Armenia 460,000 working citizens take care of 520,000 pensioners.

The new retirement plan envisages that citizens under 40 will be saving their future pensions themselves. Every month five percent of their salaries will be transferred to their private banking accounts opened in the accumulated pension funds licensed by the government; and the state pledges to add an equivalent sum to the transferred amount of money. The funds will invest the money in the stock market.

“Our stock market is not working at all; if a recurrent decline is registered in the stock market, who is going to give a citizen his/her money back?” asks Mesrobyan, who believes that it is necessary to have a stable stock market before passing to this system.

Mesrobyan also believes that passing to the system should be voluntary, so that all the citizens who prefer the new system understand what risks they may face and what benefits they may have.

Karen Tamazyan, Head of the Department of Financial Market Development at the RA Ministry of Finance, says that the stock market has a tendency to develop in Armenia during recent years, and even in case of pension funds’ bankruptcy, a citizen will not lose his/her accumulated money, because mechanisms of returning the money will be developed.