For a secure retirement: Cumulative pensions in Armenia
Cumulative pensions in Armenia
The cumulative pension system was introduced in Armenia in 2014—initially on a voluntary basis, and since 2018, on a mandatory basis. This year marks 10 years since the mechanism was launched, yet many people are still unaware of the details.
Here’s what future retirees need to know about cumulative funds and the conditions offered.
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Who has accumulated more money in their pension fund
Tatevik A., 35, has been working in the government system for five years. She hadn’t given much thought to the amount accumulated in her pension fund until her colleagues brought it up. She discovered that over her years of work, she had saved around 1 million drams ($2600) in her cumulative pension fund.
“We started comparing the amounts everyone had accumulated in their pension funds and joked about who would have a more secure retirement. It turned out some colleagues had saved more—up to 2 million drams ($5200),” Tatevik shared.
After this conversation with her colleagues, Tatvik even calculated how much she would have by the time she retires at 63 if she continues in the same position with the same salary.
At 63, Armenian citizens who are part of the cumulative pension system will receive an additional amount on top of the state pension. This additional amount comes from what they have accumulated in their pension fund over the years. Each month, 10% of an employee’s salary is saved in the fund—5% directly from their salary and another 5% from the state budget.
How it all began
The need for a cumulative pension system in Armenia was first discussed in the early 2000s. The law on cumulative pensions was passed in December 2010 and came into effect on January 1, 2014, following a set schedule. Initially, anyone interested could participate in the pension savings plan on a voluntary basis.
By 2018, about 200,000 people had voluntarily joined the cumulative pension system, with the total amount in pension funds exceeding 120 billion drams ($312 million at today’s exchange rate).
Starting July 1, 2018, the payment of cumulative social contributions became mandatory for all workers born after January 1, 1974, regardless of their employer’s legal status. This means that contributions to the cumulative fund became obligatory for employees of government institutions, as well as commercial and non-commercial organizations.
The decision to transition to a mandatory cumulative pension system was significantly influenced by the aging population factor.
According to international standards, to ensure the well-being of one retiree, social contributions from at least three workers should be made to the treasury. In Armenia, in the 2000s, one worker supported one retiree, a critically low ratio.
Since 2018, the mandatory participants of the cumulative pension system include:
- Civil servants born after January 1, 1974 (starting from the beginning of the year),
- All workers born after January 1, 1974 (since July 2018),
- Those who started working for the first time after 2014,
- Individual entrepreneurs,
- Notaries.
Who controls the future pensioners’ money and how?
The Central Depository of Armenia is the custodian of the cumulative pension funds and the registry of participants.
Two organizations manage the pension funds: Amundi-Acba Asset Management and C-QUADRAT Ampega Asset Management Armenia. Each manages three types of pension funds:
- Stable Income (Low Risk): Savings are invested in deposits or bonds.
- Conservative (Medium Risk): Savings are invested in deposits or bonds and up to 25% in stocks.
- Balanced (High Risk): 50% of savings are invested in deposits and bonds, and the remaining 50% in stocks.
Amundi-Acba Asset Management was founded in 2013 by the French investment company Amundi and Akba Bank. This bank is known in Armenia as a partner of the renowned French banking group Credit Agricole.
C-QUADRAT Ampega Asset Management Armenia LLC is a joint venture established in Armenia by the Austrian company C-QUADRAT Investment AG (Vienna, Austria) and the German Ampega Asset Management (Cologne, Germany).
Future retirees can choose their manager and fund at their discretion. If they do not make a choice, the system automatically assigns them to a medium-risk (conservative) fund managed by one of the companies.
Most did not choose their pension fund independently
Our research indicates that the majority of participants did not make an independent choice regarding their pension fund.
According to the Central Bank, in the first quarter of 2024, there were 845,082 participants in cumulative pension funds. The overwhelming majority—838,286, or over 98.5%—are enrolled in the conservative fund.
This means only 1.5% chose their fund independently. Specifically, 3,635 people preferred the stable income fund (low risk), and 3,161 opted for the balanced fund (high risk).
In response to our inquiry, C-QUADRAT Ampega Asset Management Armenia, which manages pension funds for about 370,000 people, reported:
“About 99% of beneficiaries are concentrated in the conservative fund because they did not make a choice.”
The pension fund management company encourages participants to be more proactive, monitor the performance of managers, and make their own choices:
“Active participation by beneficiaries in managing their pension funds will help in the effective distribution of pension assets among the funds.”
According to data published by the Central Depository, 67% of the amounts entrusted to cumulative funds are invested within Armenia in drams, in the form of government and corporate bonds, deposits, equity securities, and alternative investments. The remaining 33% are invested in dollars and euros in foreign equity and debt securities.
Among the most significant investments contributing to Armenia’s economic growth, C-QUADRAT Ampega Asset Management Armenia highlights the following:
“The funds’ assets are directly or indirectly invested in the real sector of the economy through investments in the ‘EU-Armenia SME Fund’ and bonds issued by the Armenian electrical networks. In 2024, the company invested in the venture fund Formula VC, aimed at developing the IT sector, which is considered a priority for Armenia’s economy.”
Why don’t people take advantage of the choice? Expert opinion
According to economist Narek Karapetyan, an expert from the Amberd Research Center, several factors contribute to why people end up in pension funds by default and remain there:
Lack of awareness
“I believe there needs to be increased public awareness. Citizens generally do not take the initiative. Despite pension fund management companies effectively presenting their activities on their official websites, there remains a need for more accessible information to raise public awareness.”
Lack of clear differences between funds
“If there were significant differences between the managers and the funds, the issue of choice would be very relevant. However, most people do not see major differences between the three funds offered by the two managers and therefore do not change the default choice.”
Limited choice
“In the U.S., the cumulative pension system offers a multitude of plans. One such plan allows individuals to independently form an investment portfolio for their pension savings. U.S. citizens often consult pension asset management advisors for advice on where to invest.
If we provided our citizens with such freedom of choice, I would say they are passive. However, our offering is quite limited—people do not have the authority to manage their assets independently.”
Impact of pension funds on the economy
Currently, the net assets accumulated in Armenia’s pension funds amount to around 878 billion drams (over $2 billion).
Economist Narek Karapetyan believes:
“The funds accumulating in the pension accounts will continue to grow in the coming years until the first generation begins to receive their pension payments. In 10-20 years, the amounts accumulated in these funds could reach 50-60 percent of our GDP, significantly impacting the country’s economy.”
According to the expert, as a result of legal reforms implemented in recent years, pension funds now have mechanisms that influence economic growth and development. However, this impact could be magnified several times with the introduction of new tools and mechanisms.
“With more effective use of pension funds, both the economy and the people will benefit. Citizens’ accumulated funds can be invested in more diverse areas. The economic development dynamics will provide people with better opportunities for skill realization, active economic participation, and income generation,” he says.
When you can receive your pension
Participants in the pension fund can start receiving their pension at age 63, alongside their regular age-related pension.
Before reaching 63, the pension can be accessed under the following conditions:
- At age 55, if sufficient funds have been accumulated (20 million drams, approximately $52,000);
- If the participant is diagnosed with a disease listed in the government-approved list of illnesses;
- If the participant is recognized as having a third-degree disability;
- If the participant is a non-resident working in Armenia who returns to their country of permanent residence.
According to the Central Depository, as of June 1, 2024, 42 Armenian citizens have already taken advantage of their right to receive a pension.
