Mandatory component of funded pension system will come into force on  July 1: Armenian government will try to mitigate negative effect

ArmInfo. The obligatory component of the accumulative pension system, in spite of the conversations about the transfer for a year, will be introduced from July 1. At the same  time, the procedure and amount of monthly payments will be reviewed.  The decision on this, Deputy Minister of Finance of Armenia Karen  Tamazyan stated in a conversation with ArmInfo correspondent, will be  taken today, on June 11, at an extra-ordinary government meeting.

So, starting from July 1, along with the entry into force of the  mandatory component of funded pension, Armenia reconsiders the amount  of monthly payments on them. From next month, the monthly mandatory  payments will be 2.5% of the salary (on the part of the working  citizen) instead of the early 5%. The state will contribute 7.5% to  the savings account of the system participant, but not more than  37,500 thousand AMD, and 450,000 thousand AMD for the self-employed  persons, against the early 5%, 25 thousand AMD, and 300 thousand AMD,  AMD, respectively. "The state, temporarily, assumes a certain  burden," the deputy minister said, indicating that the "initiative"  would cost the budget about 14 billion AMD, plus the 43 billion AMD  already approved by the state budget for 2018.

Tamazyan informed that this decision to reduce the rates for  compulsory payments under the MPF is temporary until the government  revises the rates of income tax, which should be reduced. It should  be noted that the plans to revise income tax rates from 23, 28 and  35% to 20 and 25% respectively. After this, it is possible that the  government will return to the terms of the MPF.

The mandatory accumulative pension system (MPF), as pointed out by  Tamazyan, will prove its effectiveness. "Regardless of any political  shocks in the country, through the financial system, today citizens  of the country have the opportunity to secure their old-age pension  payments," he said.Today, an employed citizen who receives a salary  of 180 thousand AMD after the appointment of a pension old age, at  best claims 40-50 thousand AMD.Thus, as the deputy minister pointed  out, his quality of life suffers, but as a result of transition to  the MPF, citizens themselves will provide themselves careless old  age, at what age the citizen connected to the system, the authors of  the idea assure that the pension will be from 40 to 70% of the  salary.In this context, in an obvious loss citizens born before 1974.  And those who managed to connect to MPF in the 25-year-old age, and  at 65 will retire, having in the baggage uninterrupted work  experience, can claim all 70% of the current salary.

Do not discount the demographic aspects. At present, the ratio of the  social taxpayer / pensioner is 0.9 to one. If the life expectancy in  Armenia increases, then, as the expert explained, there will come a  situation when even one able-bodied citizen will not be able to  maintain one pensioner. Then it will be necessary to raise even more  taxes in order to support pensioners.

As of today, about 200,000 people have become members of the system.  Since July 1, 2018, another 50-60 thousand beneficiaries are to join  it. A total of 120 billion AMD have been accumulated in management  companies, 70% of which have been invested in the economy of the  country: state bonds, mortgage bonds and bank debt securities,  generally aimed at hedging risks for pensioners. The average yield of  these securities in 2017 was 12.8%.

To recall, on June 7, Armenian Prime Minister Nikol Pashinyan,  speaking about the possibility of transferring the implementation of  the mandatory component of the funded pension system, said that there  is a need to calculate all the risks in order to avoid irreparable  consequences, taking into account both the national interests of the  country and the interests of each individual citizen. "The system of  compulsory funded pension in Armenia has passed" the point of no  return, "he said.Meanwhile, two days earlier, the Minister of Labor  and Social Affairs of the Republic of Armenia, Mane Tandilyan, noted  that a bill is being prepared to postpone for a year the mandatory  component of a funded pension for private workers The Minister noted  that discussions are under way to find solutions that would be  acceptable to all.