Wednesday, May 30 2012 21:12
Central Bank of Armenia ready to ensure proper control over funded pension system participants
ArmInfo. Armenia has made a good start to form a funded pension system by creating a proper legislative base through adoption of the Laws "On funded pensions", "On investment funds" and "On securities market", Robert D. Strahota, securities market expert, said at a round table in Yerevan on Wednesday. The organizer of the event was the USAID Pension and Labor Market Reform Project.
Strahota said that the Government of Armenia has made a correct decision, according to which the pledge fund will have to compensate for 80% of the margin in case the yield of the funded pension system user's accumulated funds is lower than the inflation level over a certain period of time.
The expert also said that the Central Bank of Armenia (CBA) is working to attract an experienced international pension custodian to the Armenian market. He expressed hope that the CBA will develop proper software to attract investments to the pension funds.
Concerning the recommendations on the funded pension system, Strahota said that the powers of a custodian and an asset manager should be strictly differentiated, a custodian should have access to an asset manager's data and should have an information system reporting to the Central Bank (the supervisor), the Central Securities Depository and pension fund managers. PALM also recommends setting standard for a custodian's floating assets.
Strahota said that the Central Bank will consider their recommendations within 60 days.
He also presented recommendations on limitation (diversification) of pension fund investments, which have been drafted on the basis of the experience of the European Union, the Organization for Economic Cooperation and Development (OECD) and countries like Estonia, Latvia, Poland, Slovakia and Slovenia.
The recommendations suggest that balanced funds should not be allowed to invest in stock more than 50% of their assets but should be allowed to invest 75% in bank accounts or deposits (no more than 15% per bank), 60% in public securities (no more than 5% per issue), 30% in mortgage securities in Armenia, the EU and the OECD (no more than 5% per issue), 25-50% in the shares of other investment funds (no more than 5% per issue and no more than 10% per fund).
Member of the Central Bank's Board Aharon Chilingaryan was asked to comment on the law obliging the Armenian pension funds to invest their assets only in securities owned by OECD members, considering the fact that some OECD members, like Greece and Spain, are not financially secure. He said that the law is about foreign investments only, while other pension fund investments will be regulated by the Government. The Central Bank will have to control them through custodians and other mechanisms.
Chilingaryan explained that the first funded pension systems appeared some 30 years ago. In the times of crisis the systems survived due to efficient asset management and their redistribution from risky to non-risky countries.
When asked if the Armenian economy will be ready for adsorbing pension fund investments by the time the funded pension system is launched (in 2014), Chilingaryan said that there are mechanisms that will allow to effectively use the money and added that the investment instruments will be gradually diversified as was the case in Kazakhstan, Serbia, Estonia and some Eastern European countries. "The Central Bank will create necessary infrastructure and is ready to control the asset managers, the custodians and the depositary in line with the law," Chilingaryan said.
He said that Converse Bank has already started offering a funded pension opportunity by acting as the custodian of a pension deposit program.
Ardshininvestbank is also preparing for similar activity.
Chilingaryan said that when applying for a license a potential asset manager should have his contract with a custodian.
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