RETIREMENT INSURANCE

Azat Artsakh – Nagorno Karabakh Republic [NKR]
13 May 05

Nikolay Baghdassarian: `Mr. Avetissian, what are the main functionsof
the fund?’ Vasily Avetissian: `The main functions of the NKR State
Fund for Social Insurance are: record of obligatory payments to the
retirement, payment of retirement pensions, as well as funding of
state programmes of state social insurance and employment. Besides, on
the expense of the payments provided from the state budget the fund
provides means for social security payments, pensions of army officers
and private soldiers, premiums, recovery and other costs.’ N.B.:
`Since January 1, 2005 the functions of calculation, payment and
control of the income of the NKR State Fund for Social Insurance have
been fulfilled by the NKR State Tax Service. In your opinion, is the
transfer of functions an advisable step?’ V.A.: `, First of all, I
consider it rightto transfer the mentioned functions to the tax agency
because tax agencies have greater authority which will result in
increase in collection of payments to the retirement fund. Besides,
the insurers will report to one authorized agency, and the number of
agencies authorized to check the operation of businesses and the
frequency of checking will be reduced.’ N.B.: `Not long ago serious
problems connected with unpaid pensions arose. What is the situation
like today?’ V.A.: `Let us look back. In 1999 unpaid pensions totalled
700 million dollars, that is to say, pensions had not been paid for
three-four months. We managed to settlethe debt and pay the pensions
in time. If in 1999 budget income totalled 63.4 per cent, in 2000 it
improved to 94.8 per cent, in 2001 101.2 per cent, in 2002 106.1 per
cent, in 2003 108.4 per cent. In 2004 collection of payments to the
retirement fund improved by 480 thousand against 2003. Of course, the
present size of the pension is far from being satisfactory; therefore
constant steps are taken to improve the collection of financial means,
as well as the legislation. The medium-term and long-term programmes
worked out by the government provide for annual increase of the sums
directed at social programmes, as well as the size of pensions. In our
country the number of pensioners is almost equal to that of working
people, that is to say, the sum paid by a worker to the retirement
fund is paid to a pensioner, whereas the budget of social insurance
comes from obligatory payments to the retirement fund by workers. The
pension and salary are interrelated indicators. Economic development,
new jobs and rise in salary result in increase in pensions. Our aim is
high pensions and secure old age. The following indicators prove that
the government has adopted such a policy.’ N.B.: `It is not a secret
that the retirement fundneeds serious changes. What steps have been
taken in this direction?’ V.A.: â=80=9CI consider the new law on state
pensions adopted in November 2003 to be a fundamental and important
step in improvement of the retirement fund. The principle of
solidarity of generations underlies the operating system, that is to
say, todayâ=80=99s workers pay for today’s pensioners, and the size of
the pension depends on the years of service of the retired person. I
have to confess that before the adoption of the law the difference in
the size of the pension of people having many years of service and
those who had not worked at all was insignificant. The principle of
social justice was violated. The new law introduced the notionof
individual coefficient of the pensioner, which resulted in
considerable increase in the difference in the size of
pensions. Further increase in pensions will make the difference
grow. The new law also maintains the system of individual record,
which is an important precondition for passing to the system of
accumulation. An individual record means that the payments of each
worker to the retirement fund will be reflected in his personal
account and the size of his pension will be decided according to his
payments. Before that both the principle of solidarity of generations
and the system of accumulation will operate simultaneously. It is
planned to create a three-grade system including the following
elements: a) state retirement security, b) obligatory accumulation
retirement insurance, c) voluntary retirement insurance. State
retirement security is provided through state governance and is funded
from the means of payments to the retirement fund. This element, as
social aid, must provide minimum retirement pension for everybody,
including those who do not have sufficient means in the system of
accumulation. In obligatory accumulation retirement insurance each
person who members this system has their personal account and draws a
pension the size of which is determined by the amount of obligatory
payments to the retirement fund and the average life expectancy. It
should be decided when and which groups of people will pass to
obligatory accumulation retirement insurance, and in this case how the
problem of today’s pensioners can be solved. The voluntary retirement
insurance is funded from voluntary insurance payments.It is introduced
as additional insurance in addition to the state system. The main
mission of the government is to create a legislative environment for
the normal operation of the system, regulate the activity of the
institutions in this sphere and exercise state control.’

NIKOLAY BAGHDASSARIAN.
13-05-2005