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ARMENIA: SHOULD WORKERS BE FORCED TO SAVE FOR RETIREMENT?
EurasiaNet.org
Jan 27 2014
January 27, 2014 - 2:03pm, by Gayane Abrahamyan
A US-supported pension-reform project has ground to a halt in Armenia
amid a popular outcry over whether the state can compel taxpayers to
plan for retirement.
Pensioners account for roughly 18 percent of Armenia's population of
2.8 million, according to the National Statistical Service. Currently,
retirees receive monthly state pensions of 25,000-40,000 drams
($61-$100) -- amounts generally not deemed adequate to meet basic
living expenses. Already struggling with a relatively weak economy,
many Armenian families don't have enough income to help out elderly
relatives.
Citing the current economic environment, officials in Yerevan are
arguing, with backing from the US Agency for International Development
(USAID), that working Armenians should start saving for their own
retirement. Under a plan the government hopes to launch later this
year, wage earners born after January 1, 1974, would have 5 percent of
their monthly salaries withheld by the government. The withholdings
would be placed in an interest-earning pension fund that could be
tapped by individuals only after they turned 63. The state would
guarantee 80 percent of the deposited monies.
Many taxpayers are objecting to the forced-savings plan. In response
to a motion from civil-society activists and the country's four main
opposition parties (the Heritage Party, Armenian National Congress,
Armenian Revolutionary Federation and the Prosperous Armenia Party),
the Constitutional Court, Armenia's highest judicial body, ruled on
January 24 to postpone the reform's introduction pending a March 28
review of its constitutionality.
Memories of lost savings in the state-run Sberbank after the 1991
collapse of the Soviet Union drive much of the current misgivings
about the pension plan initiative. "They deceived us back then!"
shouted 85-year-old pensioner Greta Shahumian, holding high two
Soviet-era bank account books at a well-attended January 18 rally in
Yerevan against the reform. "Now again they are trying to pocket your
money -- don't trust them!"
Meanwhile, economist Artsvik Minasian, an MP for the Armenian
Revolutionary Federation (ARF), contended the reform would be
"economically disastrous" by "increasing both taxes and the shadow
economy, reducing the number of jobs, decreasing GDP . . . [and]
triggering another wave of migration."
President Serzh Sargsyan's administration remains committed to the
reform. On January 24, Sargsyan predicted that the pension plan would
"later be called historic," the president's office reported. The
Central Bank has licensed C-QUADRAT Ampega Asset Management Armenia,
a joint-venture involving an Austrian and a German investment
firm (C-QUADRAT Investment AG and Talanx Asset Management GmbH
respectively), to manage the fund. USAID has pledged to help "ensure
the successful roll-out of the new pension system."
A determinedly upbeat Labor and Social Welfare Minister Artem Asatrian,
whose ministry would oversee the program, asserted on January 21 that
the change would bring "tangible results."
That's just what worries some critics.
Armenians now pay an income tax amounting to 24.4 percent of their
monthly salaries over 45,000 drams ($110) and 26 percent for salaries
over 120,000 drams ($300).
Under the social-security plan, they would have another 5 percent
of their salaries withheld. Deductions would be taken out of the
individual worker's gross salary, compounding the shrinkage of
take-home pay, said accountant Maneh Tandilian, a member of the
"I Object" anti-pension-reform movement.
Concerns about shrinking take-home pay resonate in the country's
relatively well-paid IT sector, an emerging economic field that the
government is eager to develop. "Many among my friends are discussing
options for leaving the country," commented programmer Gevorg
Gorgisian. "Why do we have to lose 40 to 45 percent of our salaries,
which hardly suffice for covering our family expenses [and] looking
after our parents, because the state does not provide decent pensions?"
Harutiun Mesrobian, a professor of economics at Slavonic University
in Yerevan, said the idea has merit that the social security plan may
stimulate emigration. The size of Armenia's shadow-economy, widely
believed to account for a large share of the Armenian job market,
could expand as well. Taxpayers "cannot pay such big taxes . . . and
survive at the same time," said Mesrobian.
Given the prevalence of corruption, some opposition politicians
are suspicious about Sargsyan administration's motives. One, Naira
Zohrabian, secretary for the Prosperous Armenia Party's parliamentary
faction, went so far as to call the withholding plan a "state racket."
Minasian, the ARF MP, questioned whether taxpayers would see any
benefits from the fund. He asserted that the government, by law,
cannot guanatee 80-percent of its deposits since budgetary regulations
require that such guarantees do "not exceed 10 percent of each
year's tax revenues." If the pension fund, as forecast, increases by
100-billion drams ($245 million) each year, that amount would outstrip
the government's guarantee by the second year of the fund's existence,
he claimed.
Galust Sahakian, leader of the governing Republican Party of Armenia's
parliamentary faction, brushed off speculation about the government's
ability fulfill its pledges. "If the law says that the government
will guarantee [deposited pension funds], so it will," he said.
Representatives of the Ministry of Labor and Social Welfare declined to
respond to questions about the reform, referring EurasiaNet.org instead
to Prime Minister Tigran Sarkisian's remarks. In his end-of-the-year
news conference, the prime minister on December 27 called opposition to
the reform "understandable" since "any reform meets resistance." But
ultimately, he underlined, "there is no alternative to the compulsory
accumulative pension system."
Editor's note: ane Abrahamyan is a freelance reporter and editor
in Yerevan.
http://www.eurasianet.org/node/67980
EurasiaNet.org
Jan 27 2014
January 27, 2014 - 2:03pm, by Gayane Abrahamyan
A US-supported pension-reform project has ground to a halt in Armenia
amid a popular outcry over whether the state can compel taxpayers to
plan for retirement.
Pensioners account for roughly 18 percent of Armenia's population of
2.8 million, according to the National Statistical Service. Currently,
retirees receive monthly state pensions of 25,000-40,000 drams
($61-$100) -- amounts generally not deemed adequate to meet basic
living expenses. Already struggling with a relatively weak economy,
many Armenian families don't have enough income to help out elderly
relatives.
Citing the current economic environment, officials in Yerevan are
arguing, with backing from the US Agency for International Development
(USAID), that working Armenians should start saving for their own
retirement. Under a plan the government hopes to launch later this
year, wage earners born after January 1, 1974, would have 5 percent of
their monthly salaries withheld by the government. The withholdings
would be placed in an interest-earning pension fund that could be
tapped by individuals only after they turned 63. The state would
guarantee 80 percent of the deposited monies.
Many taxpayers are objecting to the forced-savings plan. In response
to a motion from civil-society activists and the country's four main
opposition parties (the Heritage Party, Armenian National Congress,
Armenian Revolutionary Federation and the Prosperous Armenia Party),
the Constitutional Court, Armenia's highest judicial body, ruled on
January 24 to postpone the reform's introduction pending a March 28
review of its constitutionality.
Memories of lost savings in the state-run Sberbank after the 1991
collapse of the Soviet Union drive much of the current misgivings
about the pension plan initiative. "They deceived us back then!"
shouted 85-year-old pensioner Greta Shahumian, holding high two
Soviet-era bank account books at a well-attended January 18 rally in
Yerevan against the reform. "Now again they are trying to pocket your
money -- don't trust them!"
Meanwhile, economist Artsvik Minasian, an MP for the Armenian
Revolutionary Federation (ARF), contended the reform would be
"economically disastrous" by "increasing both taxes and the shadow
economy, reducing the number of jobs, decreasing GDP . . . [and]
triggering another wave of migration."
President Serzh Sargsyan's administration remains committed to the
reform. On January 24, Sargsyan predicted that the pension plan would
"later be called historic," the president's office reported. The
Central Bank has licensed C-QUADRAT Ampega Asset Management Armenia,
a joint-venture involving an Austrian and a German investment
firm (C-QUADRAT Investment AG and Talanx Asset Management GmbH
respectively), to manage the fund. USAID has pledged to help "ensure
the successful roll-out of the new pension system."
A determinedly upbeat Labor and Social Welfare Minister Artem Asatrian,
whose ministry would oversee the program, asserted on January 21 that
the change would bring "tangible results."
That's just what worries some critics.
Armenians now pay an income tax amounting to 24.4 percent of their
monthly salaries over 45,000 drams ($110) and 26 percent for salaries
over 120,000 drams ($300).
Under the social-security plan, they would have another 5 percent
of their salaries withheld. Deductions would be taken out of the
individual worker's gross salary, compounding the shrinkage of
take-home pay, said accountant Maneh Tandilian, a member of the
"I Object" anti-pension-reform movement.
Concerns about shrinking take-home pay resonate in the country's
relatively well-paid IT sector, an emerging economic field that the
government is eager to develop. "Many among my friends are discussing
options for leaving the country," commented programmer Gevorg
Gorgisian. "Why do we have to lose 40 to 45 percent of our salaries,
which hardly suffice for covering our family expenses [and] looking
after our parents, because the state does not provide decent pensions?"
Harutiun Mesrobian, a professor of economics at Slavonic University
in Yerevan, said the idea has merit that the social security plan may
stimulate emigration. The size of Armenia's shadow-economy, widely
believed to account for a large share of the Armenian job market,
could expand as well. Taxpayers "cannot pay such big taxes . . . and
survive at the same time," said Mesrobian.
Given the prevalence of corruption, some opposition politicians
are suspicious about Sargsyan administration's motives. One, Naira
Zohrabian, secretary for the Prosperous Armenia Party's parliamentary
faction, went so far as to call the withholding plan a "state racket."
Minasian, the ARF MP, questioned whether taxpayers would see any
benefits from the fund. He asserted that the government, by law,
cannot guanatee 80-percent of its deposits since budgetary regulations
require that such guarantees do "not exceed 10 percent of each
year's tax revenues." If the pension fund, as forecast, increases by
100-billion drams ($245 million) each year, that amount would outstrip
the government's guarantee by the second year of the fund's existence,
he claimed.
Galust Sahakian, leader of the governing Republican Party of Armenia's
parliamentary faction, brushed off speculation about the government's
ability fulfill its pledges. "If the law says that the government
will guarantee [deposited pension funds], so it will," he said.
Representatives of the Ministry of Labor and Social Welfare declined to
respond to questions about the reform, referring EurasiaNet.org instead
to Prime Minister Tigran Sarkisian's remarks. In his end-of-the-year
news conference, the prime minister on December 27 called opposition to
the reform "understandable" since "any reform meets resistance." But
ultimately, he underlined, "there is no alternative to the compulsory
accumulative pension system."
Editor's note: ane Abrahamyan is a freelance reporter and editor
in Yerevan.
http://www.eurasianet.org/node/67980