Armenia`s savings funds used ineffectively - MP

ArmInfo. The resources of Armenia's savings funds are used extremely ineffectively. This was stated on February 11 at the plenary session of the National Assembly of the Republic of Armenia by Artur Khachatryan, a member of the National Assembly from the opposition faction "Armenia".

He noted that instead of directing the funds of citizens born after 1974 to the real sector of the economy, one third of them are taken abroad, and the other is distributed within the state, and, moreover, it is distributed very unsuccessfully - in the form of credit deposits in the country's commercial banks, where consumer loans predominate. "A person does not have financial resources, but wants to buy an iPhone, I do not know how this contributes to the development of the country's economy. Of course, it affects the seller of this product, but it has no effect on the economy. Moreover, if the same person cannot get out of the situation to pay off the loan, the state, for unknown reasons, decides to help him," the deputy said.

He added that citizens' funds in reasonable amounts must be directed towards the development of the real sector of the economy, which will also contribute to the development of pension funds, which are not, by their nature, speculative structures.

In this regard, Deputy Chairman of the Central Bank of the Republic of Armenia Armen Nurbekyan emphasized that the export of pension savings outside the country is one of the fundamental areas of diversification of the activities of pension funds.

One of these areas is the acquisition of US securities, to which it is planned to direct about 30% of financial resources instead of the current 15%. Thus, Nurbekyan continued, Armenian pension funds have the opportunity to become involved in the US stock exchanges, which have been recording record figures over the past few years.

The Deputy Chairman of the Central Bank emphasized that the Republic of Armenia managed to save 1 trillion drams (about $2.5 billion), which was formed by reducing interest rates on credit deposits, which previously amounted to 40%, and today - 20%. Meanwhile, the availability of saved funds is one of the most important components in the development of pension funds.

The plenary session of the National Assembly is discussing amendments to the Law on Accumulative Pensions in the second and final reading, which will allow easing some restrictions on investments by pension funds. Currently, there are limits on investments for funds, which does not allow pension funds to fully direct their resources to various investment projects, including infrastructure development, as  well as to finance other sectors of the economy. Investment projects in Armenia are mainly financed through non- public (not listed on the stock exchange) financial instruments. At the same time, the opportunity to invest in non-public (not listed) instruments is provided only indirectly through other investment instruments, which limits the ability to invest the population's pension savings in the economy, reduces the efficiency of fund management and their ability to generate high income.

The proposed amendments to the law will expand the investment opportunities of pension accumulation funds by directing the funds' resources to finance the RA economy through the use of various financial instruments. The current law contains a provision according to which a pension fund manager does not have the right to manage a specialized investment fund. Meanwhile, there are sectors in the Armenian economy that require financing, and these investment  projects can be financed through investment funds.  At the same time, managers of mandatory pension funds have professional skills to manage various investment funds. Therefore, the removal of legislative barriers will allow using these opportunities, stimulating investments in the real sector of the economy.

Currently, some investment limits set for pension funds have a  negative impact on the efficiency of their management. In particular, the small investment limit in equity securities - 25% for conservative funds does not allow funds to take advantage of the opportunity to ensure high and stable returns in the long term. Now it is proposed to increase this threshold to 35%.

The law also prohibits direct investments in non-public (unlisted) financial instruments (allowed only indirectly through investments in other funds with a maximum limit of 10%). In general, investment projects in the real sector of the economy can be financed through various instruments: direct investments, when a pension fund invests directly through the purchase of shares, bonds or other financial instruments, including those unlisted on the stock exchange, and  indirectly, through other investment funds, which, in turn, invest in projects. However, according to the current legislation, only  indirect investments in non- listed instruments are allowed, and the financing of the real sector of the economy in Armenia is carried out mainly through direct investments in non-public (unlisted) instruments. As a result, investment projects implemented in the economy remain inaccessible to pension funds. Therefore, there was a need to include direct investments in the 10% share of investments in  non-public funds, which would allow the funds to jointly participate directly in the financing of various investment projects in the real sector of the economy.

In addition, according to the current law, the register of fund  participants provides beneficiaries with information about their  savings in paper form. But the problem is that a number of  opportunities have already been created for a citizen to choose a pension fund online, change a fund, and receive additional  information by providing an e-mail. As a result, the requirement to send information in paper form makes the administrative costs of the system unreasonably high.

In 2023 alone, these costs amounted to about 50 million drams. At the same time, about 1/3 of these costs did not justify themselves, since paper reports did not reach participants due to incorrect addresses or other reasons. Therefore, the introduction of amendments and additions to the law is aimed at exempting from the obligation to send information in paper form, which will reduce administrative costs.

The elimination of all these restrictions will increase the  investment opportunities of Armenian pension funds. Earlier,  Amundi-ACBA Asset Management CEO Jean Mazejian told ArmInfo that the volume of assets managed by mandatory pension funds in Armenia reached 2.2 billion euros or 10% of GDP.  Meanwhile, in developed countries, for example, in the Netherlands, the figure reaches 115% of GDP.

From the moment the system was introduced until today, there have been only two pension fund managers in Armenia who received licenses from the Central Bank of the Republic of Armenia to manage pension funds within the framework of the ONPS in 2013: C-Quadrat Ampega Asset Management Armenia and Amundi-ACBA Asset Management. The shareholders of the first are the Austrian investment company C- Quadrat Investment AG and the German Talanx Asset Management. In  terms of assets (about 150 billion euros), Talanx Asset Management GmbH is one of the largest insurance and financial groups in Europe, represented in 150 countries. The shareholders of the second are the French company Amundi (51%), which manages assets in excess of 2.2 trillion euros in 35 countries, and the Armenian Acba Bank (49%).

Management companies offer three investment models: stable income, conservative and balanced.  According to the rules, the stable income model assumes that assets cannot be invested in equity securities and derivative instruments based on them; according to the terms of the conservative model, the weight of equity securities and derivative instruments acquired for the purpose of hedging them in the fund's assets cannot exceed 25%; according to the rules of the balanced model, the weight of equity securities and derivative instruments acquired for the purpose of hedging them in the fund's assets cannot  exceed 50%.  Which of the specified strategies is used to place  funds, the participant of the system decides for himself, and his  transition from one model to another is free once within one year. Those who did not initially make this choice, the system  automatically places in a medium, moderate risk fund, that is,  conservative. As the risk level increases, so does the return on  investment.