Compulsory component of funded pension system will become mandatory  for all citizens of Armenia starting from 1 July, 2018

ArmInfo.The compulsory component of the funded pension system will become mandatory for all citizens of Armenia starting from 1 July 2018. The amendments to the  Law "On compulsory  funded pension system" were adopted in the first reading today.

Presenting the draft amendments, RA Minister of Finance Atom  Janjughazyan noted that along with the beginning of the mandatory  component for all citizens of the country, the order and amount of  monthly payments will be revised.

Thus, starting from July 1, the monthly mandatory  payments will be  2.5% of the salary instead of the current 5%. The matter concerns  citizens born after Jan 1, 1974. The state will transfer 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 current 5%, 25 thousand AMD, and 300 thousand  AMD,  AMD, respectively. "The state, temporarily, takes a certain  burden untill a package of tax reforms is adopted, whcih envisages  reduction of income tax rates as well," the minister said, indicating  that the government's "initiative"  would cost the budget about  aditional 12 billion AMD, plus the 43 billion AMD  already approved  by the state budget for 2018. The Minister also stressed that the  current legislation of the country provides for mechanisms to  compensate for the losses of citizens from inflationary processes.   The minister also ruled out the possibility of bankruptcy of pension  fund managers. Atom Janjugazyan urged not to discount the demographic  factors. At present, according to him, the ratio of the social  taxpayer / pensioner is 1 to 1, while this indicator should be equal  to 1 to 3. If the life expectancy in Armenia increases, then, as the  minister explained, there will come a situation when even one  able-bodied citizen will not be able to support one pensioner. Then  it will be necessary to raise taxes even more in order to support  pensioners.

The Minister said that as of today, about 200,000 people have become  members of the system. From July 1, 2018, it should another 50-60  thousand beneficiaries will join the system. Altogether, 124 billion  drams have been accumulated in management companies, 70% of which are  invested in the country's economy:  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 note, the government envisages reducing income tax rates from 23,  28 and 35% to 20 and 25% respectively. After this, perhaps, the  government will return to the former conditions of the compulsory  pension system.

Earlier in an interview to ArmInfo Deputy Minister of Finance of  Armenia Karen Tamazyan informed that as of today, an employed citizen  who receives a salary of 180 thousand AMD after the appointment of a  retirement pension, int e best case 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 mandatory system, citizens  themselves will ensure careless old  age. No matter at what age the  citizen is involved to the system, the authors of  the idea assure  that the pension will be from 40 to 70% of the  salary. In this  context, citizens born before 1974 do not benefit obviously.  And  those who managed to involve in the new system in the 25-year-old  age, and will retire at 65, having uninterrupted work experience, can  claim all 70% of the current salary. 

To recall, on June 7, Armenian Prime Minister Nikol Pashinyan,   speaking about the possibility of postponing 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 reached " the point of no   return, "he said. 

The compulsory accumulative pension system applies to the citizens  born after Jan 1, 1974 and will come into force in Armenia starting  from July 1 2018.  According to the new law on Accumulated pensions,  the  minimal pension in the country will be equal to the minimum  wage,  while the basic pension will total 150% of the minimum wage.