By Atom Markarian
The Armenian government moved Thursday to introduce mandatory social security accounts for the country’s citizens in a first step towards a radical overhaul of the pension system.
Armenians will be given personal social security numbers under a draft law approved by ministers. The encoded accounts, widely used in developed countries, will contain their employment history and other relevant data.
Officials said the bill, which needs to be approved by the parliament, will be an important element in the transition to a new pension system based on the so-called pay-as-you-can principle. According to it, the amount of retirement benefits will depend on life-long social security contributions of employees.
“We are moving to a new social security system whereby every citizen will have to earn his own pension throughout his professional career,” said Social Security Minister Razmik Martirosian.
“Every citizen will get his own number that will accompany him for the rest of his life,” he said.
The existing Soviet-era pension system does not differentiate between the size of contributions and is based on the so-called “solidarity of generations.” With the number of pensioners approaching that of citizens employed in non-agricultural sectors of the Armenian economy, it will be increasingly difficult to sustain.
But analysts caution that that the type of the social security system will be irrelevant to most Armenians as long as their average pensions remain extremely low, ranging from $10 to $20 a month at present. Martirosian said the authorities want to address the problem by cracking down on huge hidden employment and the widespread underreporting of real wages by employers.