HERE AND BEYOND
Pension savings schemes offered by “Ameriabank” will allow companies to develop principally new staff motivation methods.
Media Room
It is anticipated that pension reforms in Armenia in progress during the recent years will be completed soon and the pension system of the country can more effectively solve the issue of social welfare of one the most vulnerable social groups of the society – aged citizens. However, even today the level of capital market development in the country provides an opportunity for financial organizations to offer services similar to, and later on compatible with, the expected pension system.

Having analyzed the vector of reforms still in progress, Ameriabank started to introduce various services on accumulation of pension savings to its corporate clients. Artak Nahapetyan, Asset Management Director of Ameriabank and Ruben Gevorgyan, Mutual Funds Unit Manager of the same bank spoke about the details of operation of the offered mechanism in their exclusive interview to the correspondent of "ARKA" News Agency. 


  – Which pension schemes existing worldwide are more preferable for Armenia? How effective are pension programs in Armenia and, in your opinion, what development trends do they have?


A. Nahapetyan – Worldwide, among the abundance of pension schemes, there are mainly two schemes enjoying most popularity: distributional and accumulative. Today Armenia applies the distributional system, which implies that when an individual attains retirement age, a pension is assigned and paid to him, in proportion to years of employment and size of salary.

The second more advanced scheme is accumulative, which in many countries replaces the distributional scheme as the population gradually ages and the living standards grow. Under this system, the individual, in the course of his working life, accumulates his pension, at the cost of certain allocations to his individual account. Upon attaining the retirement age, the individual uses the accumulated savings, by getting his savings back fully or by installments.

  – What schemes operate in Armenia and what does the pension program offered by the bank represents?

R. Gevorgyan
– The distributional pension system, also called solidarity of generations pension system, operating in Armenia implies payment of pension from allocations made by working generation. Whereas, the accumulative system, as mentioned earlier, assumes that each individual accumulates savings on his account, in proportion to his income. This is much fairer system.

The pension scheme offered by “Ameriabank” is based on interrelated trust accounts, i.e. sums paid jointly by the employer and employees are accumulated on that accounts and after a certain period can be paid to employees.

It is worth mentioning that these schemes can be both corporative and individual. In individual schemes, the employee-investor saves funds for himself, which are managed by “Ameriabank”. In corporate schemes, the employer participates in the financing of employee’s trust account. In case of corporate scheme, the employer receives significant options – in this way he can influence on interrelations with the staff, by increasing the motivation of right employees. In particular, these schemes imply that the employer is the owner of the funds accumulated at its cost until the time comes for payment and, if the employee quits early, the employer has levers to influence within the scope of those schemes. For example, the employer may, at its discretion, pay the accumulated amount fully, partially or decide to pay an insignificant portion thereof. All this depends on a specific case, for example, the years and quality of work, and other parameters, which may be included in the schemes, at employer’s discretion.

A. Nahapetyan
– Pension models developed by the bank are very flexible and are thoroughly elaborated, to meet the tasks of the client. I would like to emphasis the important – these schemes contribute to building more predictable and long-term employment relations between employee and employer. The employee becomes more interested in working longer and better, which naturally increases operations productivity of an enterprise.

  – Will this product enjoy demand in Armenia, what development prospects does it have, and how many clients do you plan to attract?


R. Gevorgyan
– By our estimates, along with introduction and development of corporate culture in Armenia, such relations will enjoy high demand, since employee and employer get incentives to enter into long-term employment relations. These relations, most likely, will be developing by expanding the scope of employers interested in these services.

“Ameriabank” is getting prepared thoroughly to the introduction of the particular product in its product line. We distinctly see that there is a certain demand for these pension schemes. This is particularly notable in companies with foreign participation, which are used to working under accumulative system. 

In Armenia, it is assumed that children will take care of us when we get old, and often we heap all concern of old age on our children’ shoulders. However, the foreign culture (when an individual independently accumulates savings for old age, to leave freely and not to heap the burden on his children) is very important, and in this respect, this product has a rather serious social orientation.

  – Will any age limitation apply to opening of a pension account? For example, can the employer open an account for a retirement age employee?


R. Gevorgyan – Since the offered schemes are rather flexible, there are many opportunities envisaged therein. Contrary to state accumulative pension systems, which often include certain limitations, we do not envisage such limitations, and employer may open an account for a 60-year employee and accumulate funds on his account say for a year or two.  

It is quite another matter that the amount accumulated on such employee’s account during that period will be very little, and most likely, it will be of no significance to him. In this situation, employer should be governed by his own objective considerations: is it worth or not opening an account for an employee of that age. Yet, we do not envisage any age limitations in our scheme.   

  – Please explain the mechanism of concluding a trust management contract between employees and employers.

R. Gevorgyan- The mechanism of concluding trust management contract is defined in the Armenian legislation and such contracts are currently protected under effective laws. The RA Law on Securities defines in details the procedures of entering into a contract, the list of information a trust manager must provide to a potential client prior to entering into a contract, and other provisions subject to mandatory inclusion in the contract. In particular, the contract should include an Investment Statement providing an opportunity to each client (who decides to take benefit of the particular service) to become aware of anticipated risks, and have a full picture of where his money will be invested, who will manage the risks and how, and whether the managers are professionals or not.

All this information should be included in the contract – this is strictly regulated by the statute. In this respect, our freedom of action is restricted and this is the right thing to do.

  – How will the size of allocations to employees’ pension accounts be determined and what measures will be taken in case of failure to make allocations and upon occurrence of other violations? 

R. Gevorgyan – Once the parties agree, a certain percentage of salary will be defined and allocated to the pension account by employee and employer. This percentage, by our estimate, may vary from 3% to 15% per cent of the salary amount. We do not define a strict minimum: however, in each specific case, the allocated amounts should not be too small, since it will be difficult for the trust manager to handle those amounts.

The laws define that trust management contracts may not include strict conditions on allocation of sums. In this sense, allocations may be made irregularly, at the amount less than stipulated by the contract. Yet, at the same time, the contract may include rules, which in case of non-observance may be changed by the agreement of parties.

– According to the procedure regarding early withdrawal of funds by employee, he is required to agree his decision with employer and trust manager. What schemes apply in the event of refusal to grant permission or agreement? 

R. Gevorgyan – A portion of funds accumulated on employee’s account could be withdrawn at any time, by the decision of employee. In this case, employer should be notified about it and decide whether he continues to finance its part of allocations to the account of the given employee. 


At the same time, the contract may stipulate cases, where the employee can withdraw funds allocated by the employer. These will be special cases determined under the contract (e.g., personal accident, industrial injuries, illnesses), but in these cases too, the funds are withdrawn from the account solely by the agreement of the employer.

  – What investment strategies the bank offers regarding pension savings? Does the investment mechanism apply solely to employers or to employees as well?

A. Nahapetyan – Pension savings all over the world are invested in low-risk instrument, and this is the main characteristics of pension strategies. In this case, the priority for both investors and a trust manager is to retain funds. Therefore, the basic principle of pension assets management implicates the strategy of ensuring maximum profit at minimum risk. Once agreed by the employer, we define the investment strategy in advance. Yet, in the most part, as accepted in the world practice, investments are made in risk-free instrument, particularly, in government bonds.

R. Gevorgyan – In other words, investments will be made in fixed-income assets mainly. At present, this is the principal strategy of the bank with respect to pension assets management. Even at the time of crisis, these securities are not apt to shocks, as are for examples shares. In the scope of corporate schemes, we offer standard investment strategies. Employer may choose one of these strategies, or adhere to a strategy developed especially to meet its needs. In case of individual clients, who wish to accumulate pension savings, we will develop individual approaches and schemes.

  – Do other banks offer similar services?


A. Nahapetyan – So far, there is not much competition in this sphere, which provides many opportunities to enter the market for all interested market participants. However, it is very important here to take into consideration the quality and the stability of products, since the matter in concern goes beyond few months and even years. Pension products developed by “Ameriabank” are not only of high quality in terms of meeting various needs of clients, but also ensure compliance with effective legislation. Moreover, since the introduction was preceded by rather long phase of analysis of reforms in both our country and countries of post-soviet region, our products are fully adapted to changes in legislative and regulatory environment. In this is the credo of “Ameriabank”..Text (English)

Updated 25.07.2009, 11:22
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