By Shakeh Avoyan
The government is pressing ahead with its plans for a radical reform of Armenia’s ineffective pension system that will peg the size of retirement benefits to workers’ lifetime social security contributions, Labor Minister Aghvan Vartanian said on Tuesday.
Vartanian said the government intends to began phasing in the so-called pay-as-you-can system in 2007. “We aim to create a system that will result in pensions guaranteeing a normal and dignified retirement,” he told a news conference.
The existing social security net is far from ensuring that, with the average pension worth approximately 10,500 drams ($23) a month or below the official subsistence level of 12,000 drams. The government periodically approves modest increases in the pensions paid to some 530,000 elderly Armenians.
According to Vartanian, one of the reasons why it can not raise the pensions further is the fact that the current pay-as-you-go system is based on the so-called principle of “the solidarity of generations” whereby the pensions are paid from the social security taxes of younger Armenians. He said the government wants to divide the future pensioners into three groups that will receive benefits in accordance with the total amount of those taxes paid by them during their professional careers. The new system will be more efficient and equitable, he added.
The government took the first preparatory step for the reform last year with the introduction of mandatory social security cards and accounts for all Armenian citizens. The individual accounts will contain information about a person’s employment history and pension contributions.
The government also announced January a major crackdown on the widespread hidden employment and underreporting of employee salaries — one of the main forms of tax evasion in Armenia. The Armenian Ministry of Labor estimated late last year that more than 400,000 workers are affected by the practice.
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