Compulsory or voluntary?: Disputes on controversial pension reform continue in Armenia

The mandatory accumulation pension system continues to be one of the most controversial issues in Armenia today. On March 28, Armenia’s Constitutional Court is to decide whether the element of the pension reform envisaging additional pension contributions by citizens aged below 40 should be mandatory or voluntary. A majority of people in Armenia insist on the voluntary principle being applied, while the government, backed by some international organizations, wants the element to be of a mandatory nature.

Talking to RFE/RL’s Armenian Service on Tuesday, Parliament Speaker Hovik Abrahamyan said that if there was a need to make changes in the law, they were always ready to discuss it. “The Constitutional Court still has to make its decision. In any case, we are not the enemies of our people. We want to realize a good reform. If this reform has flaws, if there is a need for additions, we are ready to discuss it. We do not argue with our people,” said the senior member of President Serzh Sargsyan’s ruling Republican Party of Armenia.

The voluntary system of pension contributions was introduced in Armenia on January 1, 2011, and from January 1, 2014 it was supposed to become of a mandatory nature for all working citizens born after 1973. This caused a public outcry, as most citizens believe additional deductions from their meager salaries are a rip-off. The government, meanwhile, views the reform as the only alternative to the existing pension system based on the so-called ‘solidarity of generations’. Besides, it believes that pension funds can create ‘long money’ that can be invested in the development of the economy.

Four non-coalitional faction of the Armenian Parliament, namely the Armenian Revolutionary Federation (Dashnaktsutyun), the Prosperous Armenia Party, the Armenian National Congress and Heritage, took the dispute to the Constitutional Court. On January 24, the Court made a procedural decision suspending the sanctions foreseen by certain provisions of the Law “On Funded Pensions”.

International financial organizations also insist that Armenia introduce the system of funded pensions. Also, U.S. Ambassador to Armenia John Heffern recently expressed his positive attitude towards the unpopular pension reform in Armenia. He said this will not only give hundreds of thousands of Armenians “safe and adequate pensions”, but also reduce tax evasion and boost the country’s fledgling financial sector. According to Heffern, the question is whether Armenia wants to have a system where deductions will be made by the state and where the government will manage the funds, or will prefer having international recognized investment companies managing these funds.

Still, experts do not exclude that the discontent and the probability of its turning into a riot may make the Constitutional Court decide that the payments should be voluntary. This will help neutralize the protests of those who have refused to pay and still have not made any contributions to the funds. At the same time, those who did transfer money to the funds, under the law, will not have the right to quit this system.