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Pension Reform in Armenia

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Pension Reform in Armenia PBSS 2012 HONG KONG PENSION REFORM IN ARMENIA ASTGHIK ANANYAN Astghik Ananyan – President of the “Actuarial Society of Armenia” NGO Responsible Actuary at “Sil Insurance” CJSC ([email protected]) CONTENT CHAPTER 1. GENERAL PROVISIONS 3 CHAPTER 2. LABOR PENSIONS 4 CHAPTER 3. MILITARY PENSIONS 8 CHAPTER 4. SOCIAL PENSIONS 10 CHAPTER 5. MISCELLANEOUS 11 CHAPTER 6. MANDATORY FUNDED COMPONENT 12 CHAPTER 7. PAYMENT OF MANDATORY FUNDED PENSION 17 CHAPTER 8. VOLUNTARY FUNDED COMPONENT 19 CHAPTER 9. THE GENERAL PRINCIPLE OF TAXATION 22 - 2 - PENSION REFORM IN ARMENIA Armenia, like other European countries is facing demographic challenges, which is not only aging population, but also emigration of economically active population because of war, blockade and socioeconomic issues that country faced in early 1990-ies, right after Armenia regained independence. Even though economic situation improved in 2000’s, state expenditures on social security do not provide necessary funds for dignified retirement. Aging of population will have no possibility to maintain sustainable social welfare system under the current pay-as you-go (PAYG) system. Armenians decided to use the window of opportunity to change the pension system. It’s worth mentioning, that economically even more established nations have to undergo unpopular measures to keep the current level of pensions. The Government of Armenia has committed to reform the country’s pension system by introducing both voluntary and mandatory funded pension options. It hopes that these reforms will make the system financially sustainable and ensure an appropriate level of income at retirement. The reform process will require change in the mentality, attitude, and behavior of common citizens and economic entities. The reformed pension system of the Republic of Armenia incorporates three components. Component 1: State Pension (Social Pension/Pillar 0 and Labor Pension/Pillar 1) An old age social pension shall be granted to individuals, who have reached the age of 65 and are not eligible for a labor pension. The state pension security secures pensions to individuals in the cases and in the manner prescribed by law at the cost of the State budget. Component 2: Mandatory Funded Pension (Pillar 2) The mandatory funded pension component shall ensure the payment of funded pension benefits to individuals as prescribed by law from mandatory funded contributions and return on their investment when these individuals reach the age entitling them to an old age labor pension. Component 3: Voluntary Funded Pension (Pillar 3) The voluntary pension component shall ensure the payment of supplementary pension (income) to individuals from voluntary funded contributions and return on their investment or insurance fees when these individuals reach the age entitling them to an old age labor pension. CHAPTER 1. STATE PENSION OVERVIEW Armenia’s existing pay-as-you-go pension system is based on the principle of solidarity of generations, the essence of which lies on the basis of the current social security is that payments are financed by current pensioners’ pensions performers. The income and social taxes paid by employees, employers and individual entrepreneurs is a direct tax paid to the State budget of Republic of Armenia, of which the pension payments are made. The state pension system is named distributive pension system. It has three components: labor, military and social. 1) Labor: a. old age b. privileged - 3 - c. long service d. disability e. survivor f. partial 2) Military: a. long-term service b. disability c. survivor 3) Social: a. old age b. disability c. survivor The principles of the state pension policy shall be as follows: 1) ensuring the pension right, irrespective of nationality, race, sex, language, religion, political or other views, social origin, property or other status; 2) ensuring the financial sustainability and development of the state pension system; 3) ensuring social solidarity and social justice; and ensuring a minimal amount of pension which is compatible with the minimal consumer budget. CHAPTER 2. LABOR PENSIONS Eligibility for the Labor Pension An old age labor pension shall be granted to any individual who: 1) has reached the age of 63, provided he or she has a length of service of 25 years; 2) has attained the age of 63 even if the person has length of service for less than 25 years, provided he/she has at least 10-years of service; or 3) is one year younger than the age of entitlement, provided the person has the length of ser vice of at least 35 years and is not employed. The individual entitled to an old age labor pension may apply for a pension any time at his/her own discretion. The old age labor pension shall be granted for the life-time period. A privileged pension shall be granted to individuals who: 1) have reached the age of 55 and have at least a 25-year’s length of service of which at least 15 calendar years count as full-time employment under particularly hazardous, particularly heavy conditions; 2) have reached the age of 59 and have accrued at least 25 calendar years of service of which at - 4 - least 20 calendar years count as full-time employment under particularly hazardous, particularly heavy conditions; and 3) suffers from hypophyseal dwarfishness (nanuses), have at least 20 calendar years of service, and have reached the age of 45. The privileged pension shall be granted to the individual before he or she reaches the statutory age entitling them for old age labor pension. Lists of productions, works, professions, positions entitling persons for the type of pension specified above are approved by the Government of the Republic of Armenia. Long service labor pension shall be granted to the employees of civil aviation as described below. 1) Members of flight command and air traffic control staff, air crews, flight operators and stewards: a. Upon reaching the age of 45 if the duration of their service is at least 25 calendar years b. Individuals who have been released from air service for health reasons may be entitled to a long service pension if their length of service is at least 20 calendar years. 2) Staff members of air traffic control service who have a dispatcher’s certificate: a. Upon reaching 50 years of age if the duration of their service is at least 25 calendar years out of which at least 15 calendar years count for employment in the air traffic control service b. Upon reaching 50 years of age if the duration of their service is at least 25 calendar years out of which 10 calendar years count for their employment in air traffic control service and if they have been released from their service in air traffic control system for health reasons 3) Members of the engineering-technical staff: a. Upon reaching 55 years of age if the duration of their service is at least 25 calendar years, out of which 20 calendar years count for occupations entitling them to a long service pension The long service labor pension shall be granted to the individual before he or she reaches the statutory age entitling him /her to an old age labor pension. The list of positions entitling the individual to a long service labor pension shall be established by the Government of the Republic of Armenia. The individual who has been recognized as a person with disability by shall be granted the disability labor pension if at the time of recognizing his or her disability he or she has earned the following length of service: - 5 - Age Group Length of Service under 23 2 years 23 – 26 3 years 26 – 29 4 years 29-32 5 years 32-35 6 years 35-38 7 years 38-41 8 years 41-44 9 years Above 44 10 years An individual recognized as a person with disability due to an occupational injury or disease, shall be granted a disability labor pension, irrespective of his or her length of service. The disability pension shall be granted for the entire period of disability. The below family members of the deceased individual shall be granted a survivor’s labor pension: 1) a child under the age of 18; 2) brother, sister and grandchild under the age of 18, provided their parents have a 3rd category limitation of working capacity; 3) a disabled child aged 18 or above, provided he or she has been recognized as disabled before reaching the age of 18 and has a 3rd category limitation of working capacity and is not employed; 4) parents, spouse who have reached the old retirement benefit age or are recognized as disabled, provided they are not employed; 5) spouse or any other capable adult member of the family or a person recognized as custodian in the manner as established by law, regardless of his or her age, provided he or she is the caretaker of the deceased breadwinner’s child, brother, sister or grandchild entitled to a pension in the manner established by this Article who is under 14 and is not employed; and 6) grandparents, provided they are not employed and have no children or their children have a third category limitation of working capacity. In case a full-time student of an educational institution loses his/her benefactor, s/he shall be granted a survivor’s pension until graduating from the educational institution, however before attaining the age of 23. Family members of a person who has died as a consequence of an occupational accident or an occupational disease shall be granted a survivor’s pension, irrespective of the length of service of such a deceased person. In case of losing a benefactor, the survivor’s pension shall be granted for the whole period of entitlement to such a pension.
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