Armenian government policies and reforms in pension system

Abstract

Pay-as-you-go pension systems were often introduced with little or no analysis of the medium and long-term effects on the elderly, on workers and on the public finance. Once schemes are introduced, it will be difficult to cope with shortage of funds to cover pension expenses because of the impact on the pension system of factors such as demographic aging, increasing ratio of pensioners to workers, etc. But the true costs of the pension scheme only become clear in the medium- to long-term as the system matures. The current system although protects retirement funds from financial-market risks, but the replacements rates for the beneficiaries of the solidarity component will result in larger deficits of the solidarity system. In this case improvements of the exclusively solidarity system through continuous increase in pensions will be accompanied by continuous unrecoverable deficits. It is clear that pension reform in Armenia is necessary, including linking benefits to lifetime earnings and contributions to the pension system. The new suggested model of pension reform can ensure higher replacement rate for contributors, higher pensions and also have positive effect on the RA economy, capital markets through investment of the huge amount of money to be accumulated in pension funds.