Pension Fund Chaos: Employers transfer ‘mandatory’ payments on behalf of employees despite Constitutional Court ruling

On February 6 supporters of the (I’m against) civil initiative intend to stage an action as part of an awareness campaign against the controversial pension law. The force of some of the provisions of the legislation was suspended by the Constitutional Court pending the ruling on its constitutionality in late March, however, many employers say technically they still have to deduct the sums from the salaries of their employees and transfer them to pension funds.

The law, which came into force on January 1, 2014 requires that all working citizens born after 1973 transfer 5 to 10 percent of their salaries to privately owned pension funds. The funds doubled by the state are supposed to be added to the basic pension of citizens when they retire at age 63.

Many citizens are strongly opposed to the reform for several reasons: in conditions of a 35-percent poverty rate many citizens say they cannot afford to save up to 10 percent of their salaries, many are not confident about the future considering the past experience when enormous savings had been lost on Soviet banks, many are convinced that the government is creating a reserve fund at their expense.

Four non-governing forces constituting the parliamentary minority joined the civil movement by filing a lawsuit with the Constitutional Court, which on January 24 suspended the application of some of the provisions envisaging sanctions for not complying with the mandatory part of the law. In accordance with the decision of the Constitutional Court, the citizens who will not allocate money to the pension funds will not be subject to penalties for as long as the case is being considered by the court.

However, as many employers say, the electronic programs by which they submit reports to the State Revenue Committee (SRC) automatically deduct money to pension funds. These programs do not have manual control. Employers who do not want to transfer 5 percent have only one option left – not to submit reports to the SRC, for which a fine between 10,000 to 20,000 drams ($25-$50) will be imposed.

MP from the Armenian Revolutionary Federation (Dashnaktsutyun) Artsvik Minasyan has announced his intention to apply to the Constitutional Court with another petition that would make it possible to overcome the legal situation. In fact, employers withhold funds of individuals who are not willing to allocate money to the pension funds and the Constitutional Court has entitled these citizens not to become part of the system yet. Meanwhile, specialists say that technically Armenia is not ready to switch to the new system, and the government is trying to provide at least some part to the savings funds – due to government agencies and businesses loyal to the authorities.