Armenian opposition deplores “untimely” pension reform

Armenian lawmakers continue the discussions of changes in the pension system, with the ongoing reform drawing strong criticism from opposition factions that consider it premature.

During the debate in the National Assembly on Thursday representatives of minority parties suggested that instead of spurring the country’s economic development the reform in the form it is proposed now will only provide an additional source of income for commercial banks.

Two years ago, still the parliament of the previous convocation passed a raft of laws envisaging drastic changes in the pension sphere by which an accumulative retirement plan will become mandatory beginning 2014 for all citizens of Armenia aged below 40. It will be optional for citizens above this age.

The reform means that all working citizens of the indicated age on a compulsory basis will have to save up their future pensions themselves, getting five percent of their monthly salaries deducted and transferred to an individual account at one of several pension funds licensed by the state, with the government doubling the sum of the transferred money. Pension money will become available to people when they reach official retirement age, which is 63 in Armenia now, or under some other circumstances involving their disability or moving out of the country.

Specialists say the new system will contribute to the reduction of the untaxed segment on the labor market and will encourage employees to demand that their employers show their real wage rate in tax reports, as this way they will ensure they have more money transferred to their individual pension accounts with expectations of higher pensions after retirement.

“The goal of the new pension system is that the state becomes responsible for the social state of the society,” Deputy Minister of Finance Vardan Aramyan explained in parliament. He added that the model to be introduced in Armenia is close to the one used in Estonia and that all possible risks have been explored and minimized.

According to the government official, the accumulative pension system will be transparent and taxpayers will be able to follow their funds. The accumulated money could be administered earlier, such as if the account holder moves to another country for permanent residence or loses his or her ability to work.

Meanwhile, opposition lawmakers are critical of the government plans to introduce the system in Armenia at this stage of economic development when many citizens still have to live off their meager salaries.

Artsvik Minasyan, a lawmaker representing the Armenian Revolutionary Federation (Dashnaktsutyun), said that the step will entail the “privatization” of the pension system, while accumulative pension funds will not be able to solve the problems that exist in the social welfare system.

Former Prime Minister Hrant Bagratyan, who is a member of the opposition Armenian National Congress faction in parliament, voiced an opinion that the introduction of the accumulative pension system will only benefit commercial banks.

“With the introduction of this system it will be impossible to ensure real economic growth, besides it will also reduce the role of state and social pensions, pension accumulative funds will not work,” concluded Bagratyan, suggesting that the government rethink the “untimely” reform.