Pension Wars

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Armenia has been experiencing a rise in political activity in the last few years. The most recent of which has been the wide scale public outcry over the government’s new pension reform plan, embodied by the ‘dem em’ (we oppose) movement. Over the past several months, thousands of Armenians, mostly young professionals, some of whom are from the IT sector, have been staging routine mass protests against the USAID-backed reforms which went into effect on the 1st of January 2014 as part of legislation enacted in 2010. Under this new pension reform law, all employed persons born after 1973 would be required to pay an extra five to ten percent of their salaries to a government-approved selection of private fund management firms. The government argues that this is a necessary measure due to the need to reduce government expenditures as the country struggles with the impending budgetary burden of population aging amongst other constraints. With the impending economic slowdown over the next two years, the government has understood the necessity of being careful with budgetary funds and the previous entirely public pension system would be too costly.  The opposition to this reform may seem perplexing to outside observers, as pension privatisation has been hailed as a successful policy for dealing with similar budgetary problems that governments have in the developed world. The blog, “the Armenian Economist” notes that countries with similar pension packages include Australia, Chile, Denmark, Estonia, Finland, Hungary, Iceland, Israel, Mexico, Netherlands, Norway, Poland, Slovakia, Sweden, and Switzerland.

Despite enjoying the backing for the reform of a number of economists, and the overt support of the US ambassador John Heffern, opponents, discontent over the mandatory element of the reform, have been suspicious of the package. They argue that the unconstitutional measure would be seen as an extra form of taxation on a labour force which is already underpaid, and over taxed, and would ultimately lead to an increase in emigration particularly within the IT sector, which is dominated by highly paid (by armenian standards), highly skilled young professionals who would be tempted to pursue careers elsewhere.

Since the reforms have been hailed as both necessary and competent, why have they generated so much controversy? There are a few things that are worth noting:

It’s about being overtaxed:

Currently, roughly 26% of an Armenian worker’s salary goes to paying various taxes, including their public pension funds. In a country where the average income is less than 250 EUR a month, this means that workers are left with just over 180 EUR to cover monthly expenses. Removing another 5 to 10% of their salaries would leave them with just 170 EUR per month. This in a city where the recommended minimum monthly expenses for one person is roughly 400 EUR.

Its about freedom of choice:

One of the biggest issues of contention here is that the new pension plans are mandatory, and citizens are unable to choose how it is managed. The government has responded to concerns by pointing out that they cannot expect the population to manage their own pensions as they would be left with nothing after retirement, and tried to comfort opponents by mentioning that the  private pension funds will be managed by French “Amundi” and German “Talanx” companies. The Constitutional Court, however, has sided with the protesters on the matter.  It should be noted, however, that even in pension systems which are said to not be mandatory, the actual amount of choice is quite trivial anyway.

It’s about mistrust for the State:

Many Armenians can still recall how much of the life savings which they had collected over many years vanished overnight with the collapse of the USSR, and again a few years later, when the government illegally dipped into the nation’s pension funds to finance new projects. Furthermore, armenians have grown increasingly cynical of incessant government promesses with seemingly more sinister intentions, such as the recent speeding cameras, bus fare increases, city centre parking system, etc. The government, in response has done very little to show genuine will to help foster better dialogue with civil society over such issues, conducting closed-door meetings, and so on.

It’s a vote of non-confidence in the Government:

One aspect of this movement which could puzzle outside observers is the lack of actual criticism of the reform itself. A recent study conducted by masters students at the American University of Armenia’s School of Humanities revealed that many of those frustrated were ready to accept the reform’s implementation if it had been proposed by any government other than the present one. In this sense, the current protests are part of a wider wave of protest against the Republican government by an increasingly vocal, and competent opposition movement.

As Initial discontent has since grown into a fully fledged movement, it has noticably attracted and united all four non-governmental parties: the opposition the Heritage party, Armenian National Congress, ARF- Dashnaksutyun and the non-ruling Prosperous Armenia Party towards the cause. Initially unorganised and chaotic discontent eventually transformed into a clear list of demands. The protesters claimed that they would not back down until the reform package was submitted to the constitutional court for evaluation, repeal said laws, and for the prime minister, Tigran Sargsyan to resign.

Amid the backdrop of almost daily protests (which include a rap song)  the Constitutional Court declared, on April 2nd, that certain elements of the reform package were indeed anti-constitutional, and ordered the parliament to reconsider it. Despite this, mandatory inputs into the new pension plans, which had automatically started on January 1st continued, prompting a continuation of public protests.

Since then, the Prime Minister Tigran Sargsyan has resigned, replaced by notorious oligarch Hovik Abrahamyan (known colloquially as ‘mook’), who has declared his intention to work with the professionals to reform the package. At the time of writing, the National Assembly has approved a new bill on pension reform, after the Court gave them until the end of september to bring it into conformity with the constitution. The new prime minister, Hovik Abrahamyan, has publicly stated that the changes to the reform will make it optional to subscribers. In the meantime, employers are still asked to continue taking 5% of worker’s salaries. Meanwhile, the protests are growing in size and frequency…