The United States voiced strong support on Friday for a controversial pension reform implemented by the Armenian government, with U.S. Ambassador John Heffern saying that it is vital for Armenia.
Speaking at a conference in Yerevan, Heffern echoed government arguments in favor of a measure that has sparked street protests by young workers now required to save a significant portion of their income for their future pensions. He said this will not only give hundreds of thousands of Armenians “safe and adequate pensions” but also reduce tax evasion and boost the country’s fledgling financial sector.
“We believe that the new pension system is prudently designed to protect the interests of future pensioners,” Heffern said. “It will provide Armenian workers with the opportunity to improve their financial security in retirement by diversifying their sources of income, including saving for retirement in a private -- private -- pension fund.”
“The reality is that the current system in Armenia is not sustainable. Change -- though difficult -- is necessary,” he added.
The diplomat acknowledged that many Armenians born after 1973 and therefore covered by the reform strongly oppose it because they do not want to see their net wages shrink by up to 10 percent and lack trust in two private pension funds chosen by the government to manage their extra social security contributions. But he argued that the funds are run by two European asset management companies with “long track records of success.”
One of them is a joint venture between Austria’s C-QUADRAT Investment and Germany’s Talanx Asset Management. The other, Amundi-ACBA, is a subsidiary of the French banks Credit Agricole and Societe Generale. Armenian officials expect the two asset managers to attract between $100 million and $150 million in pension contributions this year alone.
“We must also recognize that many Armenians lost their long-promised pensions when the Soviet Union collapsed,” Heffern said, referring to a key reason for the workers’ fears. “That memory is still fresh. In addition, there is a lack of trust among the government, Armenia’s institutions and the citizenry.”
The Armenian government, continued Heffern, should therefore clearly explain the merits of the reform to the population “not just once or twice, but over and over.” “It now needs to provide more information on how the new system will ensure the safety, efficiency, and impartiality of pension contributions for all Armenians,” he said.
The government was supposed to do just that through the Pension System Awareness Center Foundation set up by the Ministry of Labor and Social Affairs and supported by the U.S. Agency for International Development (USAID) for the past several years. Friday’s conference, which featured speeches by Heffern and Prime Minister Tigran Sarkisian, was organized by that center.
The conference brought to light not only U.S. but also multilateral donor support for the reform. The Yerevan-based representatives of the World Bank and the International Monetary Fund unequivocally defended Armenia’s ongoing transition to the new pension system as they addressed the forum.
Mark Horton, an IMF mission chief for Armenia, said earlier this month that the reform would “provide an impulse to financial sector development.”