by Alexandr Avanesov
The Parliament of Armenia passed the second and final reading of amendments to the Law On Mandatory Accumulative Pension, Thursday.
Nerses Yeritsyan, Vice Chairman of the Central Banks of Armenia says the Government of Armenia used the US 401(K) system when drafting the document.
However, he said, the system of Holland with a compulsory component is better. The most successful experience of the system's application is registered in Chile, Hong Kong, Singapore, and all the countries of Eastern Europe, he said. According to Yeritsyan, the Government of Armenia is expected to reduce the expenses of the participants in the system on the maintenance of the register. Furthermore, fines and pennies will be applied against employers for delayed payments. The charged fines will be equally distributed to the pension accounts of employees. The citizens will be receiving relevant notifications. After the first payments of an employee that did not chose a managing company, his funds will be sent to the account of the registrator of the participants at the Central Bank. A citizen will be informed within 10 days of the necessity of choosing a fund and a managing company. If the citizen again fails to make a choice with 13 days, the system will automatically include him into a conservative funds of a managing company selected at random. The employees have a right to 'transfer their funds from one portfolio to another.' According to Vice Chairman of the Central Bank, over 50% of the citizens of Armenia are ready to participate in the new pension system and chose one of the 6 investment portfolios offered by two licensed private managing companies. March 2014 is deadline for choosing a pension fund.
Introduction of the compulsory accumulative pension system in Armenia has sparked public outrage in Armenia. People complain against upcoming salary charges amid rising gas and electricity tariffs. The transport fare may also be increased by 50%-100% next year. The compulsory accumulative pension system will apply to the citizens born after Jan 1 1974 (the citizens below 40). Starting Jan 1 2014, 5% of their salaries will be transferred to their personal accumulative accounts. The government will transfer a similar amount (but no more than 25,000 drams). It is noteworthy that 6.6%-13% and not 5% of the monthly wages will be charged, as the charges will be made from the so- called "brutto-salary."
Artsvik Minasyan, a member of ARFD Faction in the Parliament said, in turn, that compulsory accumulative pension system is introduced only in the countries with high living standards. "People are forced to save funds and invest in the economy of the country. No country with such high poverty level has even introduced the given pension system. A poor man cannot be forced to save, if he has no funds to live on," Minasyan said. He is sure that the pension reforms seeks to replenish the financial market and bears no relations to social protection of the people. The four factions of the Armenian Parliament will have to apply to the Constitutional Court over the issue, Minasyan said.
Earlier Finance Minister David Sargsyan said Armenia will transfer over $100 million pension assets under management of private European funds. Pension assets of Armenia will be managed by two private European funds starting 2014. The assets will amount to $101-$108 million in the first year, and in 2015 they will grow to $100-$150 million. Two companies applied to the Finance Ministry for relevant licenses: Amundi (France) - a subsidiary of Societe Generale (20%) and Credit Agricole (80%) and C-Quadrat (Germany). The minister said these two companies have rich experience in management of social funds. Amundi manages $1.3 trillion assets and C-Quadrat - $500 billion. The licensing procedure is over. Sargsyan recalled that the number of pensioners and employees in Armenia is nearly equal, which allow pension reform.
Nerses Yeritsyan said that private managing companies have a right to invest funds only in liquidity and make no-risky deals. Their activity will be transparent and will be controlled by the Central Bank and Government of Armenia.