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.