Second Armenian president opposed to accumulative pension system’s mandatory component

Second Armenian president opposed to accumulative pension system’s mandatory component

YEREVAN, January 13. /ARKA/. Armenia’s second president, Robert Kocharyan, says in an interview he has posted on his informal website that he is opposed to introduction of obligatory accumulative pension system in the country.  

He is skeptical about success and finds prospects for failure with losing people’s money very high. 

“It can be tallied retrospectively how much our citizens would lose from crises, if we introduced the obligatory accumulative pension system in 2005m,” he said. “I couldn’t’t palm off with apologies, for sure. And crises are coming periodically, and, as a rule, emerge when nobody expects them.”

Under the reform plan approved by the government years ago, Armenia was to switch to the new system in January 2010 whereby the amount of monthly benefits paid to retired citizens will depend on their and their employers’ contributions to the fund. People will send to their accumulative pension account 5% of their salaries every month, and another 5%, but no more than AMD 25,000, will be added by the government. The existing pay-as-you-go system essentially does not differentiate between pensioners’ employment histories.

Kocharyan said that volatility at financial markets that creates risks in management of the accumulating funds gives grounds for concern. 

“Many pension funds have lost considerable amounts in the latest crisis, and there are no guarantees that the same will never repeat,” he said. “Armenia’s government has no sufficient reserves for compensating possible losses, and allusion to budget is an argument for naïve people. In addition - it is absolutely unclear how effectively citizens’ savings will be run.”

The former president said that there are no stock markets in Armenia, and it is obvious that some part of the accumulated funds will be lent to the government through purchasing its liabilities.  

«The government has got an opportunity to build up its internal debt, and it is likely to be bought into such borrowings,» he said. «Another part of the funds will be brought outside of Armenia, since we have no sufficient financial instruments for running them. All of this can’t have favorable impacts on the national economy, especially given the debt already accumulated.»

Kocharyan said there are no magic solutions to this problem, and it is clear that fast economic growth and high employment rate would mitigate the matter’s painfulness. 

In his opinion, the government should pay attention to arguments of many opponents of this pension reform. 

“Only time is able to show whether the government was right in launching this system or not, but unfortunately, this reform is peculiar for being time-stretched, and when problems emerge few remember authors.”

Kocharyan also said that ways for introducing the compulsory component to the accumulative pension system were intensively discussed in 2004 and 2005 on the central bank’s initiative, but the then government was opposed to that step. 

“The government’s arguments were more convincing then than those of the central bank, and besides – the performer of the reform is the government, not the central bank, and it would be wrong to impose the reform upon the government, contrary to its stance,” he said. «That's why it was decided to refrain from introducing the compulsory accumulation and to remain in the frames of the continental Europe's pension model based on the principle of solidarity between generations.»

Earlier, Prime Minister Tigran Sargsyan hailed the system saying this is the only way to ensure decent old age to Armenian citizens. President Serzh Sargsyan, too, supports the implementation of this reform.

The government's decision triggered backlash in the country. Protests are being staged in Yerevan. Nobody wants to commit 5% of their salaries to the government's trust, since people don't believe they will get their money back. M.V.-0----  

16:49 13.01.2014

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