Retirement planning: New pension system in Armenia will come into force in 2014

In 2014, Armenia will entirely switch to an accumulated pension system, which the Government of Armenia started to draft 10 years ago, however it was repeatedly delayed due to the global financial crisis and the difficulties connected with the transition from the old system to the new one.

Last week, the bill on ‘State Pensions’, which comprises pension reforms, was discussed and passed with first reading at the special session of the National Assembly (NA).

Unlike the current system, where working citizens ‘take care of’ pensioners by means of social payments (currently 460,000 working citizens take care of 520,000 pensioners in Armenia), 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 bank accounts (controlled by the Central Bank of Armenia) 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, which will then be invested in stocks. This means that when an employee becomes a pensioner, he will get a relatively tidier sum than the one that has been accumulating during their working years.

Hakob Hakobyan, Chairman of the RA NA Standing Committee on Social Affairs, at the bill discussion in the NA, reported that from 2011 the voluntary option of the accumulated pension system would come into force, with the compulsory one starting three years later.

The opponents of the accumulated pension system, however, believe that it will not work in Armenia, and a citizen who would trust his savings to the State expecting to have a secure old age, would suffer.

“The guarantees included in this package are not trustworthy at all. That compulsory principle is a human rights violation. If I am made to take a step the guarantees of which I do not have, then I am not going to trust it, let alone doing it voluntarily,” says Anahit Bakhshyan, a member of the opposition Heritage parliamentary faction, adding that currently people do not trust the Central Bank of Armenia.