Pension Insurance System in Armenia by tyndale

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									                                                                                       Working Paper No. 04/07


                            Pension Insurance System in Armenia



            Gohar Jerbashian                                                  Artem Asatryan
       Expert in Social Insurance                                  Head of Department of Pension Security
    Armenia Social Transition Program                                       and Social Insurance
           (PADCO/USAID)                                             Ministry of Labor and Social Issues
        gjerbashian@padco.am                                              aasatryan11@yahoo.com




                                                   January 2004

                                                      Abstract

International experience demonstrates strong evidence that pensions have a significant impact on
poverty reduction at family and community level. Pension insurance system of Armenia is financed
mainly from social contributions made by employees and employers and is the subject of our
investigation. Financial and demographic analysis of the current pension system in parallel with
analysis on poverty situation is a crucial first step in the pension reform process, since the pensions
must be sustainable not only financially but also socially. The rate of return on mandatory social
contributions is measured to supplement the projections of the sector specific variables. The results of
our analysis are used to make recommendations for improving the current pension insurance system
and reducing poverty in Armenia. The financial and demographic forecasts of the current pension
system are implemented using the World Bank’s PROST 9.0 model. Main socio-economic indicators,
Census - 2001 preliminary data, State Social Insurance Fund reports, in parallel with Poverty
Reduction Strategy Paper accepted macroeconomic projections are used for the implementation of the
proposed analyses and development of recommendations.

           The views expressed in this Working Paper are those of the author(s) and do not necessarily
           represent those of the Armenian International Policy Research Group. Working Papers describe
           research in progress by the author(s) and are published to elicit comments and to further debate.



Journal of Economic Literature Classification:                 H55

Keywords: Pension benefits, social insurance, poverty reduction, rate of return
2
1.    EXECUTIVE SUMMARY
In terms of indicators of human development, Armenia remains behind many developing and
transitional countries. According to statistics, the average income of every second resident of
our country is lower than the poverty level and about one sixth of the population live below
the minimum subsistence level. The transitional period has left its greatest negative impact on
those in the population unable to earn a basic wage due to various social risks. Old age,
disability, as well as the loss of the breadwinner and other social risks result in a desperate
situation for pensioners. The overwhelming majority of pensioners cannot afford to buy basic
food items and non-food consumables, and certainly cannot buy any durable goods. The
average old-age pension in 2002 was 5,118 AMD per month, lower than the extreme poverty
line (7,576 AMD per month) for that year.
The pension insurance system aims at providing adequate subsistence income (thus
protecting the elderly from poverty) to the population of Armenia due to social risks such as:
old age, long service, disability, and the loss of the family breadwinner. As a result of the low
average wage, high rates of tax evasion, the high rate of unemployment, and the small share
of salaries in total incomes, collected contributions are too small to allow payment of
adequate pensions. Nonetheless, recent reforms have improved the situation -- legal changes1
initiated in early 2003 resulted in a 34% increase in social contribution collections. While
tight legal requirements and strong administrative methods may improve the compliance rate,
the pension insurance system works best when the contributions are made consciously and
willingly. When pension benefits represent a high “rate of return” and are paid regularly,
compliance improves.
The Government of Armenia, under its Poverty Reduction Strategy Program (PRSP), has
undertaken comprehensive measures to improve the pension system and to provide
pensioners with much higher and fair pensions. In this context, financial and demographic
analysis of the current pension system is a first step in the pension reform process. Forecasts
can be used for the development of effective policies. Uncovering the factors negatively
affecting the collection of contributions is the next critical step for designing a reasonable
pension insurance system. This paper presents an analysis of the pension insurance system
from the perspectives of the number of beneficiaries, the number of contributors, dependency
rates, social insurance fund surpluses and reserves, and the effective rate of return on
mandatory social contributions made by or on behalf of individuals. The analysis presents
some features of the system that have, as yet, been paid little attention.
To ensure sustainable development of the pension insurance system, three adequacy
indicators must be met: providing adequate pensions to all insured people, ensuring
reasonable link between contributions and pension benefits, and ensuring the overall financial
sustainability of the insurance fund. While the financial position of the State Social Insurance
Fund (SSIF) is quite strong today, performance with respect to the other two indicators must
be improved to reduce poverty and guarantee social justice. Implementing the
recommendations could create a pension insurance system that meets also the requirements of
social justice.
Our projections cover 75 years period with base year 2002 and end year 2077. The
projections are conducted by PROST 9.0 model. Most of the tables and graphs are
constructed according to forecast produced by this model. The data before imputing into the
1
  A change (effective since April 1st 2003) in the Law on “Mandatory Social Contributions” requires paying
accrued social contributions no later than 20th day of the next month.


                                                                                                        3
model has been compared with the data and projections implemented within the Poverty
Reduction Strategy Paper2 (PRSP), which covers the period from 2002 to 2015. Our analysis
uses the main macroeconomic data3 as prescribed in PRSP. However, in some cases we
preferred to use other trends and hence other figures (considerations are presented in the
relevant sections of this paper). Data from Socio-Economic Conditions in Armenia (National
Statistical Service, Yerevan, 2002, 2003), Statistical Yearbook of Armenia 2002 (NSS),
preliminary data of 2001 Census, Financial Reports from SSIF, Labor Force Survey-2002
findings, and other sources have been used for analysis. We have furnished our analysis with
graphs and tables, which clearly demonstrate trends and relationships. Summary findings are
presented in the Appendix 1.


2.    PENSION INSURANCE SYSTEM OF ARMENIA

In April 9, 2003 the new Law on State Pensions came into force. The principles of
organization and implementation of state pension security and state pension insurance are
stated in the second article of the law as follows:
     1. ensuring the right to pension insurance irrespective to nationality, race, gender,
        language, religious, political or other beliefs, social origin, property existence, etc.
     2. mandatory character of state pension social insurance,
     3. ensuring financial stability, balancing and development of the pension system,
     4. ensuring allocation and payment of pensions based on information on insurance
        contributions reflected in the personal (personified) insurance accounts,
     5. ensuring social solidarity and justice,
     6. ensuring a minimal pension guaranteed by the state.
The pension system of the Republic of Armenia covers: (1) state (mandatory) pension
insurance -- pensions for citizens guaranteed from the budget generated from mandatory
social insurance payments for those who have reached pension age, disability, loss of bread
winner and other cases defined by law; (2) state pension security -- pensions for citizens not
included in the system of mandatory social insurance, provided from the State budget, in
cases of old age, disability, loss of bread winner and other cases defined by law.
After enactment of the law on State Pensions, the pension security system is funded only by
the state budget. Pension insurance is financed mainly from social contributions made by
employees and employers and is the subject of our investigation.
A person has right to a pension when requirements defined by this Law are met and if
mandatory pension social insurance payments have been made. Persons eligible for different
types of state pension benefit are granted the one they choose. Pension benefits are not
subject to taxation. A person eligible for an old-age pension may apply for pension allocation
without time restrictions. The old-age pensions are allocated lifelong. Pensioners having
worked for at least 2 years after the entitlement of the old-age and disability pension have the right for
pension recalculation.


Social Contributions: State Social Insurance Fund is the authorized state body to administer
the collection of social contributions and to allocate pensions as well as unemployment and

2
  The Government of Armenia approved PRSP by a Governmental Decree No. 994 (August 8, 2003)
3
  It should be noted that if the data obtained from different sources contain any material omissions or
inaccuracies it could have a significant impact on the results of the analysis.


                                                                                                        4
other social safety net programs including child care allowance for working mothers,
temporary illness allowance, etc.
Payroll-based mandatory social contributions sustain pensions and other social insurance
programs like: old age, long service, privileged, disability, and survivors’ pensions. The
contribution formula follows:
                                                                  Social Contribution Rates
               Wages                                                   Contribution
                                   Employee                                      Employer
    Less than 20,000 AMD                  3%          5,000 AMD
    20,000 – 100,000 AMD                  3%          5,000 AMD + 15% of pay exceeding 20,000 AMD
    100,000 + AMD                         3%          17,000 AMD + 5% of pay exceeding 100,000 AMD


All employees and their employers are required to pay contributions according to the above
scheme. After enactment of the amendment to the ROA law on Mandatory Social
Contributions in January 1st 2003, self-employed people (including agricultural workers) are
exempt from contributing to the system and, therefore accumulate no years of service.
However, those self-employed who have already accumulated the required years of service at
reaching retirement age will be entitled to a regular old-age pension.
Retirement Age: The new law defines a single old-age retirement age for both genders.
Retirement age is subject to increase according to the table below.

                                         old-age            privileged List4 1 privileged List5 2     dwarfism
                                  male             female    male     female     male    female     male   female
Required svc
min insured length of service       5                5         5         5        5          5       5       5
insured length of service           25               25       25        25        25        25       20      20
- o/w special service                -               -        15        15        20        20       -       -
               2002                63.0             58.5      53.5     48.5      59.0       53.5    45.0    45.0
               2003                                 59.0      54.0     49.0                 54.0
               2004                                 59.5      54.5     49.5                 54.5
               2005                                 60.0      55.0     50.0                 55.0
               2006                                 60.5               50.5                 55.5
               2007                                 61.0               51.0                 56.0
               2008                                 61.5               51.5                 56.5
               2009                                 62.0               52.0                 57.0
               2010                                 62.5               52.5                 57.5
               2011                                 63.0               53.0                 58.0
               2012                                                    53.5                 58.5
               2013                                                    54.0                 59.0
               2014                                                    54.5
               2015                                                    55.0

The List 1 and List 2 of production activity, jobs, professions, positions and conditions entitle
the worker to privileged pensions on the basis of position certification.
Pension Benefit Formula: The new law makes an attempt to link the size of a pension to the
years of service. Regardless the higher contributions made on behalf of the highly paid
participants the benefits to which they are eligible for after retirement is the same as for all

4
    List 1 refers to work places with especially harmful and hard conditions.
5
    List 2 refers to work places with harmful and hard conditions.


                                                                                                                   5
those with the same years of service. A priory this means that the higher paid gets a much
lower rate of return (ROR) on their contributions than the lower paid. The real amount of
contributions doesn’t play any role in benefit calculation formula, which follows:
          P = Main Pension +SP*N*AC, where
          P is the total monthly pension,
          N is the years of service,
          SP is the supplemental pension for each year of service (applicable when N>=5),
          N is the years of service, and
          AC is the adjustment coefficient.
          Under the current law, AC=N * 0.04 (if 5<N<=25) or 1 + (N-25)*0.02 (if N>25).
The sizes of the main and supplemental pensions are defined by the ROA legislation, usually
through a special decree. At the moment, the main pension is 3,000 AMD and supplemental
pension, since October 1st 2003, was increased from 100 AMD to 120 AMD. The SSIF has
stated that, in January 2004, it will be increased by a further 20 AMD. In recent years,
pensions haven’t increased sufficiently to provide pensioners with adequate pensions – they
grow at a rate far below the growth rate of GDP and wages. The recent increases are intended
to fill this gap.
While the values of the main and supplemental pensions are to be defined by ROA
legislation, the law does not define the rules for how they are to be set except for prohibiting
any decrease in benefits. Pensioners with the same years of service are entitled the same
pension regardless of their past contributions to the SSIF:
                                                 Old-Age pensions for different years of service
     Years of service        Pension (AMD)           Years of service               Pension (AMD)
            5                    3,120.0                   25                           6,000.0
           10                    3,480.0                   30                           6,960.0
           15                    4,080.0                   40                           9,240.0
           20                    4,920.0                   50                          12,000.0

Long Service Pensions: Some categories of civil aviation employees are eligible for long
service pensions:
                                  R/A   Y/S                              Notice
  Members of flight-commanding,   45     25    − 20, if released due to the health status
  flight-instructive and crew,
  stewards and stewardesses
  Members of air-traffic          50     25    −   15 direct engagement in air-traffic management
  management crew                                  activities
                                               −   10 years of direct engagement in air-traffic management
                                                   activities - for those released due to health status;
  Members of engineering-         55     25    − 20 years engaged in activities entitling to the long-
  technical crew                                 service pension.


Disability pension is allocated to persons certified as disabled by a Socio-Medical Expertise
Commission functioning under MOSS when the disability is:
   1) the result of work injuries or occupational diseases irrespective of insured length of
       service,
   2) the result of general illness – in case at the moment of disability certification the
       person has the following insured length of service:



                                                                                                         6
                            Age group                    The length of service
                             Under 23                           2 years
                               23-26                            3 years
                              26 - 30                           4 years
                            30 and over                         5 years
The required length of service is determined based on the person’s age when defining his/her
disability group at the first time. Disability pension is allocated for the whole period of disability.
Disability pension is calculated due to the regular formula where main pension is equal:
     1) 120% of main pension - for the 1st group of disability,
     2) 100% of main pension - for the 2nd group,
     3) 80% of main pension - for the 3rd group.
Survivor benefit is allocated to the deceased breadwinner’s family members, namely:
    1) child, brother, sister and grandchild under 18; brother, sister and grandchild in case
        they do not have parents capable to work and are unemployed;
    2) spouse or any other adult in the family capable to work or the legal guardian
        irrespective of his/her age and ability to work, if he/she does not work and takes care
        of income earner’s child, sister, brother or grandchild aged under 8 years of age.
    3) children, parents spouse who have reached the age entitling to retirement pension or,
        regardless of age, recognized as disabled at the moment of survivor’s death if they are
        unemployed.
Daytime students of higher educational institutions are eligible for survivor pension until
their graduation or achievement of 23 years of age. The survivor benefit is allocated in the
amount of main pension to each of the family members as defined by the Law, and adds the
insurance part of the deceased breadwinner in the following amounts:
    1) for one dependant – 50% of main pension;
    2) for two dependants – 90% of main pension;
    3) for three dependants – 120% of main pension;
    4) for four and more dependants – 150% of main pension.
The benefit for each child without both parents is double the main pension to which the
parents would have been entitled. The survivor benefit is allocated for the whole period of
time as long the above specified terms hold.
Citizens who have reached legal pension age and who do not have the length of service
required for retirement pension allocation are eligible for a partial pension if they have at
least 5 years of insured service.

3.     MAIN FACTORS AFFECTING THE SOCIAL INSURANCE SYSTEM
3.1.    DEMOGRAPHIC ASSUMPTIONS
One of the critical factors affecting a pension system is the demographic situation in a
country. We use preliminary data from the 2001 Census and generate mortality and fertility
rates on the basis of data on sex and age distribution of the population and deaths and births
in 2001 and 2002. Information on migration (by age and sex) shows a substantial reduction in
emigration.




                                                                                                          7
  The final PRSP6 provides estimates of the economically active population and the
  employment level in Armenia. The Labor Force Survey conducted in 2002 provides data
  from which we generated labor force participation rates and unemployment rates. Also we
  assumed that the gradually reducing emigration will eventually lead to net immigration for a
                                                         while -- as the growing economy attracts
          Population of Armenia (2002-2077)              Armenians currently living and working
      4,000                                              abroad to return home -- and then
      3,500                                              stabilize. All figures are adjusted to
      3,000
      2,500                                       Female conform to the actual population7 (total
                                                  Male
      2,000                                              population net of temporarily absent
      1,500
      1,000
                                                         population) of Armenia for 2002.
        500                                              However, when we tried to adjust the
                                                         fertility rates to estimates of total
             2        5        0      0         7        population for 2002-2015 prescribed in
          200     200      202     205      207
                                                         the Memorandum Item of the Summary
    Population of Armenia over the next 75 years         Indicators we discovered that the PRSP
                                                         projections (which ignore migration
  factor) for population require very low fertility rates leading to almost no growth of the
  population ending up with 3,118,400 people in 2077 (after reaching 3,373,800 in 2043). Note
  that in 2002 the actual population is assumed to be 3,008,600 and PRSP projects the
  population to be 3,196,000 in 2015. Taking into consideration the current rising fertility rates,
  we assumed a more optimistic scenario for population growth. The PRSP figures for total
  population (2002-2015) and the results of both low and high scenarios for 2002-2077 are
  presented in the following table:
                                                              Population of Armenia in 2002-2077
                           2002    2003    2004    2005    2006    2009    2012    2015    2020    2030    2040    2050    2060    2070    2077
Total Population - PRSP 3 008,6 3,013.8 3,020.5 3,028.4 3,038.1 3,074.2 3,125.7 3,196.0      -       -       -       -       -       -       -

Total Population - low    3,008.6 3,017.1 3,021.3 3,028.1 3,037.8 3,076.3 3,126.5 3,196.6 3,306.1 3,352.7 3,368.4 3,344.2 3,250.7 3,177.8 3,118.4

Total Population - high   3,008.6 3,016.1 3,028.6 3,046.1 3,068.9 3,159.5 3,260.2 3,360.0 3,481.2 3,573.6 3,707.4 3,759.4 3,781.2 3,809.2 3,803.2




  Armenia’s fertility rates have been low in the past decade. But the recent strengthening of the
  economy has already had a positive effect on the birth rate (in 2002, for the first time, more
  babies were born than in the previous year – 32,229 compared to 32,066 in 2001). As a rule
  economic growth (we assume the observed economic growth in Armenia will continue in the
  long term) leads to increases in fertility but, after a certain level of income is reached, fertility
  stabilizes and may decline.8 For the purposes of the forecast it is assumed that after gradual
  increase of gross fertility rate from 1.3 (in 2002) to 2.22 (in 2015) then it will decline to 2.10
  in 2020 and hold at that level till 2077. This is mainly due to the economic growth and young
  average age of the population: 31.0 for male and 28.6 for female. The latter provides
  prospectus for fertility rate escalation for the period of economic growth as well as for low
  mortality rates. Therefore the population of Armenia should continue to grow for the next
  decades.


  6
    Republic of Armenia, “Poverty Reduction Strategy Paper”, Gasprint, Yerevan, 2003 -- Box 8.1. -- “Estimating
  economically active population and employment level in Armenia”, p. 145
  7
    De Facto population for 2002 is set at 3,008,600(see “Memorandum Item”, PRSP p. 173)
  8
    The decline in fertility as incomes grow in developed countries is the result of the rising opportunity cost of
  women’s time – and is observed in many highly developed countries. But we do not foresee that Armenia will
  reach this point during the time period we are analyzing.


                                                                                                                                                 8
      Improving health care will balance the inevitable falling mortality rates caused by the aging
      of the population. Life expectancy at birth today is about 69.5 for men and 75.8 for women.
      An Armenian man who attained retirement age 63 can expect to live for another 14.1 years; a
      woman who is 63 can expect to live a further 17.2 years. By 2077, life expectancy at birth is
      expected to improve to 73.3 for male and 79.5 for female and, at retirement, to 16.6 for male
      and 20.0 for female. We projected future mortality rates based on the assumption that life
      expectancy will increase by 0.5 years in every 10 years – a typical trend in developing
      countries.
      The factors influencing population growth for the next 75 years are presented below:
                              2005       2010        2015           2020             2030           2040         2050        2060       2070       2077
      Gross Birth Rate       1.4%        1.9%       1.8%         1.4%              1.3%            1.5%         1.2%        1.4%        1.3%       1.3%
      Gross Death Rate        .8%         .8%        .9%            .9%            1.0%            1.1%         1.2%        1.3%        1.3%       1.3%

      Total Fertility Rate   178.7%     213.3%     220.0%      210.0%           210.0%             210.0%       210.0%      210.0%     210.0%     210.0%

      Even with a high fertility rates (which we took for our projections), the total population of
      Armenia is projected to fall after reaching 3,809,200 (in 2070) to 3,803,200 in 2077 as a
      result of the aging of the population.
      Net migration has significantly diminished in the last few years after enormous emigration
      recorded during the 1990s. For this analysis, we assume that strong economic growth will
      reduce out migration so that net migration will be 0 in 2006 and will be positive over several
      years and, after declining again, stabilize at 0 thereafter. This assumption is based on the fact
      that many Armenians have not sold their homes in the hope of returning when the economic
      situation improves.
                   2002      2003      2004      2005       2010           2015             2020       2030       2040       2050      2060      2070          2077
Total Population   3,008.6   3,016.1   3,028.6   3,046.1    3,192.8        3,360.0      3,481.2       3,573.6     3,707.4    3,759.4   3,781.2   3,809.2       3,803.2
Population
                     0        .2%       .4%       .6%        1.1%           1.0%            .5%        .3%         .3%        .0%       .1%       .0%          (.0%)
Growth Rate
Share of People    15.6%     15.4%     15.0%     14.7%      14.0%          15.3%        17.7%         20.3%       21.0%      24.0%     24.7%     24.0%         25.6%
above Ret. Age
Life Expectancy     69.5      69.7      69.8      69.9       70.7           71.4            71.6       71.8        72.1       72.4      72.7      73.0          73.3
at Birth: Male
Life Expectancy     75.8      75.9      76.0      76.1       76.7           77.3            77.5       77.8        78.1       78.5      78.9      79.2          79.5
at Birth: Female
Life Expectancy
at Retirement:      17.4      17.3      17.3      17.2       16.9           17.3            17.4       17.6        17.8       18.1      18.3      18.5          18.7
Male
Life Expectancy
at Retirement:      23.0      22.8      22.6      22.4       21.4           21.5            21.7       21.9        22.2       22.5      22.8      23.1          23.3
Female

      With these assumptions, we have confidence in our population projections over the next 75
      years.

      3.2. MACROECONOMIC ASSUMPTIONS
      Economic conditions are the most significant factor affecting the financial stability of the
      pension system as well as the well-being of the population and pensioners among them. For
      the purposes of the analysis the main macroeconomic indicators have been derived from the
      PRSP final document. However, given the long time horizon for the analysis -- 75 years, we
      decided to ignore the inflation factor for the whole period of projections – 2003-2077, so that
      all amounts are expressed in current drams (AMD). This makes comparisons over time more
      readily comprehensible. We calculated net present values of absolute figures of the
      macroeconomic indicators prescribed by PRSP and then year-on-year percentage change
      rates have been calculated.


                                                                                                                                                           9
     Macroeconomic Indicators                           2002            2003              2004           2005             2006         2009              2012            2015
     Nominal GDP (bln drams) - PRSP                1,357.0            1,474.0           1,609.0         1,757.0         1,918.0      2,485.0           3,143.0          3,976.0
     Real GDP, % change - PRSP                     12.90%             7.00%             6.00%           6.00%            6.00%       5.50%             5.00%            5.00%
     Present Value of GDP                          1,357.0            1,431.1           1,516.6         1,607.9         1,704.1      2,020.5           2,338.7          2,707.5
     % change (no inflation GDP)                   15.27%             5.46%             5.98%           6.02%            5.98%       5.08%             4.37%            4.38%
     Average Wage, AMD - PRSP                      26,488.0          29,462.0       32,078.0           35,048.0         38,235.0    48,927.0       59,609.0           71,607.0
     % change - PRSP                               10.63%            11.23%             8.88%           9.26%            9.09%       7.86%             6.35%            5.92%
     Present Value of AW                           26,488.0          29,462.0       30,236.6           32,073.9         33,971.3    39,782.1       44,354.7           48,760.9
     % change (no inflation AW)                    10.63%            11.23%             2.63%           6.08%            5.92%       4.72%             3.26%            2.83%
     Minimum Wage                                  5,000.0            5,000.0       12,767.0           13,053.0         13,387.0    14,414.0       15,446.0           16,588.0
     % change - PRSP                                0.00%             0.00%         155.34%             2.24%            2.56%       2.43%             2.28%            7.39%
     Present value of MW                           5,000.0            5,000.0       12,034.1           11,945.3         11,894.2    11,719.9       11,493.3           11,295.6
     % change (no inflation MW)9                    0.00%             0.00%         140.68%             -0.74%          -0.43%       -0.55%            -0.70%           -0.63%
     Inflation rate – PRSP                          1.1%              3.0%              3.0%             3.0%            3.0%         3.0%             3.0%             3.0%
     Discounting Factor                             1.00               1.03              1.06            1.09            1.13         1.23              1.34             1.47


 Calculations demonstrate that after 2004 the present value of the average wage mostly
 increases over time at a lower rate10 than GDP growth. We assumed that wages would grow
 more rapidly than GDP – a characteristic of many rapidly growing economies in which wages
 are a small proportion of GDP. We believe that the average wage (26,488 in 2002) will
 rapidly grow to exceed the minimum consumer basket (29,360). Our assumptions are shown
 in the table below:
                                             Main Macroeconomic Indicators (percent annual)
                                    2002         2003         2004         2005          2006         2007       2008       2009      2012        2015           2020      2077
 Real GDP growth -- assumed 15.27%               5.46%        5.98%        6.02%        5.98%         5.08%     4.37%      4.38%     15.27%      5.46%         3.50%       2.0%
 AW % change – PRSP (no
                                  10.63% 11.23%               2.63%        6.08%        5.92%         6.14%     5.37%      4.72%     3.26%       2.83%            -          -
 inflation)
 AW % change -- assumed           16.3%          14.6%        10.0%        9.0%          8.0%         8.2%       6.8%       6.1%      4.9%        4.9%          3.8%       2.0%
 Inflation Rate                   1.10%          0.0%         0.0%         0.0%          0.0%         0.0%       0.0%       0.0%      0.0%        0.0%          0.0%       0.0%

 We assumed that after 2015 the real GDP growth rate slowly declines to 3.5% in 2020 and to
 2.0% in 2077 afterwards, and that real wage growth declines from 3.80% in 2020 to level out
 at the real GDP growth rate in 2077. These assumptions match current trends: Armenia has
 the highest GDP growth rate among CIS countries and the assumed rates may even be rather
 conservative.
                                                                                                                        Macroeconomic Environment
                          2002         2003         2004         2005           2010         2015             2020       2030      2040        2050            2060         2070       2077
GDP Growth Rate           15.3%        5.5%          6.0%         6.0%           5.7%        4.4%             3.5%        3.2%      3.0%        2.7%           2.4%         2.2%       2.0%
Real GDP - bln AMD        1,357.0     1,431.1       1,516.6      1,607.9        2,134.8     2,707.5          3,270.4     4,549.1   6,168.5     8,153.3     10,504.0        13,189.3   15,232.7
Real Interest Rate         3.0%        3.0%          3.0%         3.0%           3.0%        3.0%             3.0%        2.8%      2.6%        2.5%           2.3%         2.1%       2.0%

Nominal Interest Rate      4.1%        3.0%          3.0%         3.0%           3.0%        3.0%             3.0%        2.8%      2.6%        2.5%           2.3%         2.1%       2.0%

Price Index                 1.0            1.0          1.0          1.0          1.0           1.0            1.0         1.0       1.0         1.0            1.0          1.0        1.0
Productivity Growth       16.3%        14.6%        10.0%         9.0%           6.2%        4.9%             3.8%        3.4%      3.1%        2.8%           2.5%         2.2%       2.0%


 3.3. LABOR FORCE ASSUMPTIONS



 9
     The Minimum Wage after having increased substantially in 2004, indeed, drops afterwards.
 10
      This fact shall be paid special attention during PRS program implementation.


                                                                                                                                                                          10
 The proportion of the economically active population for each age and sex was derived on the
 basis of the number of the total economically active population (1,131,700) stated in the
 PRSP final document11 and economical activity patterns of men and women.
 The Annual Report on Socio-Economic Conditions for 2002 provided data from the 2002
 Labor Force Survey12 on the distribution of employed people by sex and age. These data were
 used to calculate employment and unemployment rates for male and female of all working
 ages. The published data was adjusted to ensure conformity with data in the PRSP final
 document: 760,500 of employed.
                                                                                          Nominal and Effective Contributors
                   2002      2003      2004      2005      2010      2015      2020            2030            2040          2050          2060        2070      2077
Total Population   3,008.6   3,016.1   3,028.6   3,046.1   3,192.8   3,360.0   3,481.2         3,573.6         3,707.4       3,759.4       3,781.2     3,809.2   3,803.2
Total Labor
                   1,131.7   1,152.9   1,174.9   1,197.8   1,304.8   1,411.5   1,487.2         1,594.7         1,727.9       1,791.7       1,844.4     1,915.9   1,964.4
Force
Labor Force as
                   37.6%     38.2%     38.8%     39.3%     40.9%     42.0%     42.7%           44.6%           46.6%         47.7%         48.8%       50.3%     51.7%
% of Population
Total Nominal
                   760.5     562.0     578.2     594.5     669.3     749.8     813.4           923.1           1,043.0       1,122.0       1,190.0     1,270.8   1,324.5
Contributors
Total Effective
                   470.0     497.5     511.8     526.2     592.2     663.2     719.5           816.6           922.9         992.9         1,052.7     1,123.2   1,170.2
Contributors



                   4.        FINANCIAL AND DEMOGRAPHIC ANALYSIS OF THE
                                   PENSION INSURANCE SYSTEM
 4.1. PENSIONERS
 Under optimistic demographic and macroeconomic scenario, the outlook for Armenia is
 favorable. The SSIF will experience significant surplus of funds throughout the next 75 years.
 The reasons are that the proportion of beneficiaries in the total population will decline in the
 next 10 years as the generation born during WWII is now retiring – and this generation is
 small. The number of privileged pensioners from
 WW II is also gradually declining and no new                 Population over Retirement Age


 entrants under this category will join the strata of    1,200.0
 the beneficiaries. This refers also to multi-           1,000.0

 children mothers and mothers caring after                 800.0

 disabled children (the largest cohort of privileged       600.0

 pensioners: 65.9%): starting from 2003 no new             400.0                                  Retirement Age +
                                                           200.0
 privileged pensions will be allocated also for
                                                              .0
 these categories of beneficiaries.                              2     1     0      9     8  7 6 5       4
                                                                                         200     201     202    202    203    204    205   206   207
 The second reason for the initial decline in the
 retirement age population is the increase in The number of retirement age population after to drop in
                                                        decline is to increase (after 2012) and again
                                                                                                        consistent

 retirement age for almost all categories of retirees. 2057 after reaching the highest 948,400. This
                                                                                      to the fact
 The old-age retirement age is set 63 for both phenomenon is mostly due born people that retire.
                                                        second generation of WW II                will
                                                                                                       that period

 genders. It has already attained 63 for men and
 will gradually approach 63 for women by 2011. The increase in retirement age reduces the
 number of new beneficiaries and increases the size of the labor force -- thus playing a
 positive role in growth of contribution revenue to the SSIF.
                                                                                                                 Distribution of Population

 11
      Republic of Armenia, “Poverty Reduction Strategy Paper”, p. 145, Gasprint, Yerevan, 2003
 12
      Social-Economic Situation in the ROA, Annual Report -2002, p. 103, NSS, Yerevan, 2003


                                                                                                                                                                 11
                 2002        2003        2004        2005        2010        2015         2020                    2030              2040                 2050                  2060               2070           2077
Total
                3,008.6     3,016.1     3,028.6     3,046.1     3,192.8     3,360.0      3,481.2          3,573.6                 3,707.4               3,759.4               3,781.2          3,809.2       3,803.2
Population
0 - 14          731.7        701.9       678.1       659.5       670.3       751.4       833.8                689.2                731.4                754.4                 713.3               764.0          746.9

15 - Ret. Age   1,808.7     1,848.2     1,897.0     1,938.3     2,076.7     2,095.4      2,030.2          2,157.6                 2,199.1               2,102.9               2,135.2          2,132.1       2,081.2
Retirement
                468.2        465.9       453.5       448.3       445.8       513.2       617.1                726.8                776.9                902.1                 932.7               913.1          975.0
Age +

 The total number of pensioners entitled to different types of pensions changes over time. The
 model incorporates the parametric changes in the pension system (i.e. retirement age change
 and revision of proportion of population entitled
 to privileged and long service pensions). The        Composition of Pension System
 graph shows the pattern of men and women              800.0

 reaching pension age during the next 75-years.        700.0
                                                       600.0
 It highlights historical fluctuations of economic
                                                       500.0
 growth and recession.                                 400.0
                                                                                               300.0                                                                                        Long Service
 We assumed that the proportion of disabled                                                                                                                                                 Survivors & Orphans
                                                                                               200.0                                                                                        Disabled
 would steadily decline due to health care                                                                                                                                                  Old Age Pensioners
                                                                                               100.0
 improvements. As long as almost 25 percent of
 working population (self employed including                                                                  2            4             0          0           0         0            7
                                                                                                       2 00         2 00          20 1       20 2        20 4       206          207
 agricultural workers) will not be entitled
 insurance pensions approximately after 2030 the                                             Number of pensioner of all categories after measurable
 number of disabled as well as survivors’                                                    decline grows at much higher pace and then drops on
                                                                                             2056 to grow later again afterwards.
 pensioners will not increase substantially13.
                                                                                                                  Number of Beneficiaries (thousand)
                          2002        2003        2004        2005        2010        2015         2020                        2030           2040                  2050                   2060           2070           2077
Old Age Pensioners        383.5       378.8       376.5       375.3       374.7       400.9        456.2                       502.7          499.5                 521.3                  511.3          456.7          455.3
Disabled                  68.2        69.4        70.7        71.9        78.7        82.8         84.6                        89.7             92.7                89.3                   87.7           82.2           78.4
Survivors &
                          10.7        10.4        10.2        10.1        10.6        11.1         11.6                        10.8             10.7                11.2                   10.8           11.2           11.2
Orphans
Long Service              19.5        21.0        22.5        23.8        29.0        28.9         26.1                        28.9             34.3                25.5                   30.6           30.9           26.9
Total Beneficiaries       481.8       479.6       479.9       481.2       496.1       523.8        578.5                       632.1          637.3                 647.3                  640.5          581.0          571.7




 4.2. EMPLOYMENT AND CONTRIBUTORS TO THE SYSTEM
 The expansion of Armenia’s informal sector, the failure of many unemployed to register, and
 unrecorded migration make it difficult to estimate the share of the population who are
 economically active and the true rate of unemployment14: “According to official statistics, the
 economically active population in 2002 was 1,415 thousand, including 90.6% employed. On
 the other hand, according to the NSS’s Labor Force Survey (LFS), Q2 2002, the employed
 population was only 61.9% of all economically active people -- that is, 28.7 percentage points
 less.” Taking into consideration that, according to the same survey, 56.1% of the population
 over the age of 16 were employed, we assumed the number of economic active population
 was 1,131,700 -- 760,500 employed and 371,200 unemployed. These figures are consistent
 with LFS results according to which unemployment rate is 32.8% not 9.4% as stated by
 NSS15.


 13
      Amendment to the ROA Law on Mandatory Social Contributions (effective since December 26, 2002)
 14
      Republic of Armenia, “Poverty Reduction Strategy Paper”, p. 145, Gasprint, Yerevan, 2003, Box 8.1
 15
      Social-Economic Conditions in Armenia, p.101, NSS, 2002


                                                                                                                                                                                                                  12
After retirement age, the share of the working people declines dramatically. We extended the
working age from 16 to 75, using data from Distribution of Employed in Different Age and
Sex Groups (LFS- 2002). The table below shows labor force participation rates -- the percent
of citizens at different age groups available to work:
                                                             Economic Activity of Population
             16-19    20-24   25-29    30-34   35-39    40-44    45-49    50-54    55-59    60-64    65-69    70-74
total         14.8%   41.5%   55.8%    63.8%   69.9%    70.7%    70.1%    69.5%    62.1%    51.2%    36.7%    14.4%
male          14,8%   43,1%   57,8%    66,4%   72,6%    73,8%    73,8%    73,8%    67,7%    59,1%    46,8%    25,8%
female        14,8%   40,1%   53,8%    61,4%   67,6%    67,8%    66,8%    65,8%    57,7%    45,1%    28,8%     5,8%

For each age group, rates were approximated, so that, when applied to the total population,
they yield the number of economic active people accepted by LFS that is 1,131,700.
According to the same survey16 the employment rates are distributed as follows:
                                   Distribution of Employed in Different Age and Sex Groups
              16-19   20-24   25-29    30-34    35-39   40-44    45-49    50-54    55-59    60-64   65-69    70-74
total          0,6%   5,9%     8,3%     8,4%    14,7%    20,2%   12,9%    12,9%     5,2%    5,5%     4,6%     0,8%
male           0,6%   6,6%     8,5%     9,1%    14,0%    19,8%   12,9%    11,3%     5,2%    5,8%     5,3%     0,9%
female         0,6%   4,9%     8,0%     7,6%    15,8%    20,7%   12,9%    14,9%     5,2%    5,1%     3,7%     0,6%


This table shows that females aged 35-59 show higher than or equal employment rates as
men did in 2002. Labor force participation and unemployment rates (derived from these
tables and approximated for each age) were used to calculate the number of contributors to
the system.
Because few babies were born during the last ten years of painful economic transition, the
labor force will decline after 2020, a period
when those born in 1990s will join the labor      Share of Employed in Different Age and Sex Groups
force. With strengthening of economy more
                                                   65-69
jobs will be created (the PRSP forecasts the                                                             female
                                                                                                         male
creation of more than 245,000 new jobs in the      55-59                                                 total


next 10-12 years) these rates will change:         45-49

economic activity will grow and unemploy-          35-39

ment rates will fall. We assume also that many     25-29

of gray economy jobs emerge into the regular       16-19
economy as a result of anti-corruption measu-           0.0%     5.0%        10.0%      15.0%      20.0%        25.0%
res taken by the Government of Armenia.
These trends are included in our calculations.    Different age and sex groups experience different
It should be noted that the transformation of    employment behavior.
the pension system will itself encourage the
rising participation of working people in the formal economy. Since the self employed and
agricultural workers have been removed from the list of social contribution payers, the
number of nominal contributors will dramatically decline in 2003. In 2002 the number of
nominal contributors was 760,500, in 2003 it is projected to be 562,000, and gradually increasing
approach a level 1,324,500 in 2077.




16
     Social-Economic Conditions in Armenia, p.106, NSS, 2002


                                                                                                                  13
The PROST model was used to project the number of working age people in the population
by assuming that people work between the age of 15 and retirement. The chart demonstrates
the proportion of population for the following three cohorts: children 0-14 years old, people
of working age (from 15-to retirement age), and those above retirement age. The chart shows
that the proportion of retirement age people
slowly increases after 2011. Meanwhile, the             Distribution of Population of Armenia by Age Groups
proportion of working age population gradually           100%
                                                           90%
decreases. This raises the population dependency
                                                           80%
ratio, meaning that to support larger cohort of            70%
retirees the contributors will have to make higher         60%
contributions in the future.                               50%                                                  Retirement Age +
                                                                                                                15 - Ret. Age
                                                           40%                                                  0 - 14
The law on Social Security Cards (adopted in               30%
September 24, 2003) requires all Armenians to              20%
                                                           10%
have social security cards after July 1st, 2004 and         0%
to use their social security numbers for all                         2        0       0       0        0      0
                                                                2 00     20 1    2 02    2 03     20 5   20 7
financial transactions. Social cards along with
personified reporting will lead to a shrinking of Proportion of retirement age population increases
the shadow economy and hence to better while proportion of working age population declines
                                                      gradually.
estimates of effective contributors. These factors
will contribute to improvements in the compliance rate.
To assess the number of working people, the number of unemployed is subtracted from the
number of economically active. However, the number of employed include those in both the
formal and the informal economy – and informal economic activity entails paying little or no
taxes and social contributions. We derived the proportion of effective contributors in the
cohort of nominal contributors using current data and assumed that this proportion would
increase over time. The share of effective contributors in nominal contributors was 61.8% in
2002, in 2003 it is projected to be 87.19% (mainly due to removing the most undisciplined
contributors: self employed) and slightly improving remain close to that level over time.
                                                Nominal and Effective Contributors (thousand)
                      2002      2003      2004      2005      2010      2015      2020      2030      2040      2050      2060      2070      2077
 Total Population    3,008.6   3,016.1   3,028.6   3,046.1   3,192.8   3,360.0   3,481.2   3,573.6   3,707.4   3,759.4   3,781.2   3,809.2   3,803.2
 Total Labor Force   1,131.7   1,152.9   1,174.9   1,197.8   1,304.8   1,411.5   1,487.2   1,594.7   1,727.9   1,791.7   1,844.4   1,915.9   1,964.4

 Labor Force as %
                     37.6%     38.2%     38.8%     39.3%     40.9%     42.0%     42.7%     44.6%     46.6%     47.7%     48.8%     50.3%     51.7%
 of Population
 Total Nominal
                     760.5     562.0     578.2     594.5     669.3     749.8     813.4     923.1     1,043.0   1,122.0   1,190.0   1,270.8   1,324.5
 Contributors
 Total Effective
                     470.0     497.5     511.9     526.4     593.1     665.0     722.2     821.5     930.4     1,003.2   1,066.0   1,140.0   1,189.6
 Contributors



4.3. PAYROLL CONTRIBUTIONS
Most SSIF revenues come from direct monthly contributions of employees and employers.
To project future revenues, we used initial data and trends on the number of contributors,
their average wage, the contribution rate, and the rate of compliance.
The cohort of contributors itself consists of effective contributors that regularly make
contributions and those who evade and/or are exempt from paying contributions officially but
meanwhile cumulate years of service (i.e. mothers caring for babies). Two aspects of
compliance are addressed: (1) paying or evading contributions, and if paying (2) paying
appropriate amount of social contributions – many insured underreport the payroll and hence
pay less money than otherwise should pay however receive credit for that period of time.


                                                                                                                                     14
   For 2002, the average wage for employees working full-time in the formal sector was 26,488
   AMD (including agricultural and non-agricultural workers). The social contribution, which is
   a flat proportion of wage for employees and progressive-regressive for employers, are paid
   each month no later than 20th day of the next month. The average effective rate as a percent
   of the wage fund is some 25%. Our optimistic demographic scenario suggests a gradual
   increase in the number of nominal contributors. Initially the real wages are suggested to
   increase substantially, however, with time passage the rate of increase will level out with
   GDP growth rate. Recall our considerations on the average wage increase in the
   Macroeconomic Assumptions section. The wage fund of contributors and the expected
   payroll contributions to the SSIF for selected years are projected to be:
                 Wage Bill of Effective Contributors and Contributions Collected (Million AMD)
                 2002        2003        2004        2005        2010        2020        2030         2040          2050          2060          2070          2077
Wage Bill:
Nominal         235,820.1   199,480.0   225,284.0   251,942.7   393,975.2   568,548.0   760,428.8   1,239,179.8   1,913,848.8   2,773,364.3   3,789,855.5   5,055,118.5
Contributors
Wage Bill:
Effective       149,382.9   177,531.8   200,519.8   224,274.3   350,938.6   506,826.1   678,563.8   1,108,258.5   1,715,846.0   2,491,915.5   3,410,764.0   4,555,667.5
Contributors
Payroll
Contributions   37,510.1    43,850.4    49,052.2    54,330.5    80,847.5    110,741.5   128,927.1   210,569.1     326,010.7     473,463.9     648,045.1     865,576.8
Collected


   Starting in early 2003, the SSIF has required employers to keep records on hiring, firing, and
   shifting the employees from one position to another. These records track on the position,
   administrative unit of employment, and, most importantly, wages. In 2003, this increased the
   number of effective contributors by 6,000 – the penalty for keeping the journal improperly is
   200 times the amount of the computational minimum wage (currently 1,000 AMD).
   Penalties, fees, and interest on deposits of reserves that cumulate in banks are the other
   sources of SSIF revenues. In 2002, these sources contributed to the revenue accumulation
   only in 0.07%. For our projections, we assumed that other revenues would be 0.1%
   throughout the projection period.

   4.4. DEPENDENCY RATIOS
   Pension system dependency ratios show how many retirees are supported by each working
   age individual (population dependency rate) and how many actual pensioners are supported
   by each worker paying contributions (system dependency rate). Over time, the population
   dependency rate falls from 23.4% in 2002 to
   16.46% in 2011 and then increases to 35.37% in        120.0%
   2077 as the population ages. The system                                         Population Dependency Ratio
                                                         100.0%
                                                                                   Sy stem Dependency Ratio
   dependency rate constantly declines. In 2001 it        80.0%
   was 111% implying that each effective contribu-        60.0%
   tor supported at last one pensioner. After remo-
                                                          40.0%
   ving social pensions from the pension insurance
                                                          20.0%
   system (according to the new law) this indicator
   has improved – it was 102.53% in 2002. The              0.0%

   system dependency ratio is projected to fall to            200
                                                                 2
                                                                   200
                                                                      5
                                                                           202
                                                                              0
                                                                                    205
                                                                                        0
                                                                                               207
                                                                                                  7

   48.06% by 2077. This improvement is the result
   of excluding the self-employed (farmers among If optimistic demographic scenario holds then
                                                                               rate will
   them) in 2003 from the system, which implies that population dependency will decline.increase while
                                                      system dependency rate
   after 2030s the number of pensioners will
   gradually decline. The number of some categories of privileged pensioners also will
   progressively decline as no new pensions have been allocated since 2003. The next factor is


                                                                                                                                                     15
the assumption of continuous economic growth due to which escalating number of jobs will
be created as well as measures will be executed for improving compliance and reducing
shadow economy that will result in bettering of the number of effective contributors.
                                                                          Dependency Ratios
                   2002        2003       2004          2005       2010      2015     2020      2030      2040       2050          2060        2070          2077
  Population
  Dependency      25.89%      24.12%     22.74%     21.88%        17.66%    17.50%   20.90%    26.91%    26.88%    31.68%      35.69%         32.15%        35.37%
  Ratio
  System
  Dependency      102.53%     96.41%     93.75%     91.40%        83.64%    78.76%   80.09%    76.95%    68.49%    64.52%      60.08%         50.96%        48.06%
  Ratio



4.5. SOCIAL INSURANCE FUND SURPLUSES AND RESERVES
The total expenditure of SSIF depends on the number of pensioners in a year and the way the
pensions are indexed. How to project the number of beneficiaries has already been discussed.
The current law on state pensions defines that the new rate of main pension benefit and
supplemental pension may not be less than the previously defined rates but offers no rules to
guide pension indexation beyond stating that this will be defined by ROA legislation. For our
calculations, we assumed that pensions would                                 Total Rev enue
                                                        As % of GDP
increase in parallel to wages so that the               20.0%
                                                                             Total Ex penditure
                                                                             Pension Pay ments
                                                                             Current Balance
replacement rate for all categories of pensions         18.0%
                                                        16.0%
approaches 25.0% in 2020 and 30.0% in 2077. It          14.0%
should be noted that the internationally acceptable     12.0%
                                                        10.0%
level is 60-70%.                                         8.0%
                                                         6.0%
Most SSIF expenditures are for old age, privi-           4.0%
leged, disability, long service, and survivors’          2.0%

benefits and for social safety net payments                    2   0   8   6   4       2        0 8 6 4
                                                            200 201 201 202 203 204 205 205 206 207
(temporary illness, maternity leave, etc.). Besides
supporting pensioners and working people in Total revenues, expenditures, pension payments and
various circumstances, the SSIF incurs current balance of the pension insurance system in
administrative costs -- membership fees, mailing 2002-2077.
services and other items. To calculate total
spending on social insurance programs, we first calculated total funds spent on social
insurance and social security programs then allocated all other expenses proportionately to
total expenditures on social insurance (sustained by social contributions) or social security
(sustained by state budget) programs.
SSIF prepares special reports reflecting the number of pensioners in each category (including
newly entitled pensioners), total spending and average pension per each category. The
structure of revenues and expenditures of SSIF17 for 2002 was used for our projections.
The table below shows that SSIF will experience surplus over the entire span of analysis. The
reserve is the accumulated “current account balance,” assuming surpluses are deposited in a
bank account (earning on average 3% in a year) each year and deficits are paid from this bank
account. A positive balance at the end of the 75-year period shows that it will be possible to
improve benefits.
                                            Current Balance and Fund Reserves over 75 years
                      2002        2005           2010          2015        2020       2030      2040        2050            2060            2070             2077
Current Balance       1,164       3,283      4,505              6,038      13,952    21,931     7,391      11,945      48,226              89,364           161,067
Fund Reserve          1,164       4,446      8,951             14,989      68,645    162,683   234,724     307,776     614,209            1,325,288        2,531,625


17
     Socio-Economic Situation in Armenia - 2002, NSS, p. 128.


                                                                                                                                                      16
These projections show that the pension system runs a surplus over the whole period. The
surplus grows from year to year and at the end
of the 75-year period, there is large accumulated       Contribution Rate
reserve equal to 52.3% of GDP. However, in            30.0%                             Assumed
                                                                                        Required (for Zero Current Balance)
reality, such a reserve hardly ever will accu-        25.0%
mulate. Any excess in funds would be used to          20.0%
increase pension benefits, decrease contribution      15.0%
rates, or introduce other safety net programs.
                                                      10.0%
Calculations show that in order to keep the cur-
rent balance at the “0” level much less contribu-      5.0%
tion rates could have been imposed on wages.
For example, in 2015 instead of assumed 23.0%                  1 2 3 4 5 6 7 8 9 10 11 12 13
of combined social contribution rate 18.4%
would suffice, in 2077 11.1% would be enough Calculations show that social contribution rate
to balance the expenses instead of 20.0% put in required to cover the social insurance program
                                                    expenses may be much lower than assumed.
the model. The table below presents the
required rates for social contributions, which are
necessary for keeping the SSIF current balance at zero level.
                                           Assumed and Required Rate of Social Contributions
                 2002    2003      2004    2005    2010    2015    2020       2030    2040    2050    2060    2070       2077
 Assumed         27.0%   26.0%     25.7%   25.5%   24.3%   23.0%   20.0%     20.0%    20.0%   20.0%   20.0%   20.0%      20.0%

 Required (for
 Zero Current    26.2%   24.1%     23.4%   22.7%   20.1%   18.4%   18.9%     18.9%    17.0%   16.2%   15.0%   12.1%      11.1%
 Balance)

However, if the contribution rates follow the pattern stated in the below table the replacement
ratios may attain 42.3% in 2077, instead of 30.0% assumed for the model.
                                                              Replacement Rate for Pensioners
                 2002    2003      2004    2005    2010    2015    2020      2030     2040    2050    2060    2070       2077
 On-Going
                 21.4%   21.4%     21.4%   21.3%   21.0%   20.9%   21.3%     21.9%    22.4%   23.2%   23.7%   24.0%     24.6%
 Average
 Affordable
 (for Zero
                 22.1%   23.3%     23.8%   24.2%   25.7%   26.4%   22.6%     23.3%    26.5%   28.7%   31.6%   38.7%     42.3%
 Current
 Balance)




4.6. INADEQUACY OF PENSIONS AND UNFAIRNESS OF ROR
To calculate the rate of return on social contribution analysis and to compare future pensions
with poverty lines (both food and consumer) here we have discharged the assumption on no
inflation. In this section we assume the inflation to be 3.0 % per year and that poverty lines
will increase at the same rate from their 2002 levels 7,576 AMD (food line of poverty) and
12,358 AMD (consumer line of poverty).
Today, pension beneficiaries receive inadequate pensions relative to their contributions made
to the SSIF: to support very low pensions, employees together with their employers pay some
25.6% of their salaries to the SSIF (see Table 1). The rates of the mandatory social
contributions for different wage levels are as follows:
                                                                                                                 Table 1
   Wage as % of AW               18,9%         50%          100%            150%          200%         300%            400%
       Pay (AMD)                 5,000.0     13,244.0      26,488.0        39,732.0     52,976.0      79,464.0        105,952.0


                                                                                                                          17
  Wage as % of AW           18,9%       50%        100%      150%       200%       300%       400%
Employee contribution        150.0      397.3      794.6     1,192.0    1,589.3   2,383.9     3,178.6
Employer contribution       5,000.0    5,000.0    5,973.2    7,959.8    9,946.4   13,919.6   17,297.6
Total contribution          5,150.0    5,397.3    6,767.8    9,151.8   11,535.7   16,303.5   20,476.2
Contribution as % of pay    103,0%      40,8%     25,6%      23,0%      21,8%      20,5%      19,3%

This table shows that the total contribution as a percent of pay declines as the pay increases
while remaining high for all categories of contributors.
A financial investment -- and social contributions should be thought as such -- is attractive
only if it provides participants with a rate of return comparable with other types of financial
investment. Of course, a solidarity pension system cannot earn fully comparable rates
because it is also redistributing funds to provide minimum benefits to those making small
contributions.
Regardless of the higher contributions made on behalf of the highly paid workers, the latter
are eligible for benefits that are the same as those of lower paid workers with the same years
of service. The real, accumulated total over an employee’s working lifetime plays no role in
benefits received. A priori, this means that the higher paid receive a much lower ROR on
their contributions than the lower paid. Table 2 demonstrates the actual pensions as a percent
of pay for different levels of earnings and different duration of the service.
                                                                                       Table 2
                           18,89%      50%       100%       150%       200%       300%        400%
     Pay (ADM)             5,000.0    13,244.0   26,488.0   39,732.0   52,976.0   79,464.0   105,952.0
   Years of service
           0               60.0%      22.65%     11.33%      7.55%      5.66%      3.78%      2.83%
          15               90.0%      33.98%     16.99%     11.33%      8.49%      5.66%      4.25%
          20               100.0%     37.75%     18.88%     12.58%     9.44%       6.29%      4.72%
          25               110.0%     41.53%     20.76%     13.84%     10.38%      6.92%      5.19%
          30               120.0%     45.30%     22.65%     15.10%     11.33%      7.55%      5.66%
          40               140.0%     52.85%     26.43%     17.62%     13.21%      8.81%      6.61%

“Rate of return” is a good indicator of the “profitability” of a pension system to its
participants. When the rate of return is in line with other possible options for the investment,
the employees will be willing to participate in the system. Otherwise they will be unsatisfied
and will try to evade paying contributions. Table 3 presents the ROR on mandatory
contributions according to the contribution schemes effective since 01.01.2001, assuming
that the pension benefit is fixed at the 2003 level and then indexed at 0.5%, 1%, 2%, 3%, and
4%. For the period 2002-2015, some general parameters are taken as projected in PRSP final
document. Several assumptions have been made about the main parameters of the model for
the period from 2016 to 2059:
− average salary increases at a rate projected by PRSP; annual inflation rate is set 3%; life
  table for male at retirement (in 2043) is generated by PROST model on the basis of initial
  data for 2002 and prescribed trends: life expectancy at birth: 69.54 in 2002, and 72.21 in
  2043, life expectancy at retirement 14.11 in 2002, and 15.87 in 2043. For completing the
  ROR calculations, the probabilities of survival after retirement age are taken into account:
  the pensions are weighted with survival rates for each after retirement age.
− payroll social contributions remain at the same rate as today for the contributor’s working
  life. 91.41% of mandatory social contributions are allocated to pay pension benefits – the
  same share as in 2002.


                                                                                                 18
− extreme poverty line and poverty line change by the inflation rate.
Table 318 shows the rate of return on funds contributed by a male participant who joined the
system in 200219 and will have had 40 years of effective service before retirement:
Base Scenario
                                                                                     Table 3
     Salary as % of AW      18.88%        50%        100%         150%        200%        300%        400%
            Pay               5,000      13,244      26,488      39,732       79,464     238,392      953,568
 0,5% indexing               -3,57%      -5,82%      -7,95%      -9,31%      -10,40%     -12,10%      -13,40%
 1% indexing                 -2,45%      -4,60%      -6,70%      -8,03%       -9,10%     -10,77%      -12,06%
 2% indexing                 -0,37%      -2,30%      -4,34%      -5,59%       -6,59%      -8,18%       -9,43%
 3% indexing                 1,51%       -0,19%      -2,15%      -3,33%       -4,25%      -5,72%       -6,90%
 4% indexing                 3,23%        1,73%      -0,14%      -1,24%       -2,09%      -3,44%       -4,53%

This shows that the actual ROR is negative for all categories of participants except for those
with very low wages (even for these categories positive returns show only the cases of
pension indexing in 3% or 4%). Higher salaries have lower rates of return. Higher indexing
increases the ROR, but still leaves the ROR negative for those with medium and above
incomes. Given this situation, low compliance in contributions is not a surprise. This scenario
ensures overcoming of the extreme poverty line from the beginning of retirement under 3%
pension indexing option, and 4% indexing option provides attainment of poverty line again
from the beginning of the retirement (see Appendix 2).
Thus, it is essential to create a pension insurance system that promotes the voluntary
participation of employees and provides a reasonable value for their contributions. Future
reforms should ensure the increase of interest rates and provision of a positive rate of return
for medium-income workers as well. Improved living conditions may play a critical role in
improving the ROR by means of increasing the life expectancy of participants upon
retirement thus prolonging their period of receiving benefits.
Armenia’s PRSP suggests increasing pensions so that the average old-age pension benefit
reaches 29,94520 AMD in 2015. Will this result in positive returns for 100-400% AW
earners? Table 4 is built under the same assumptions on the main indicators as the Table 3
was, the only difference is that the 2015 pension is fixed and then indexed on 0.5%, 1%, 2%,
3%, and 4%.
PRSP+ Scenario
                                                                                                   Table 4
 Salary as % of AW          18.88%        50%        100%        150%         200%        300%        400%
          Pay                5,000       13,244      26,488      39,732       79,464     238,392     953,568
 0,5% indexing               2,78%       1,01%       -0,95%      -2,12%       -3,03%      -4,49%      -5,66%
 1% indexing                 3,57%       1,74%       -0,18%      -1,33%       -2,20%      -3,60%      -4,74%
 2% indexing                 5,07%       3,12%        1,27%      0,18%        -0,64%      -1,93%      -2,98%
 3% indexing                 6,48%       4,42%        2,64%      1,59%         0,82%      -0,38%      -1,34%
 4% indexing                 7,83%       5,65%       3,92%       2,91%         2,18%      1,07%        0,18%




18
     The ROR indicators are calculated according to the algorithm described by M. Wiener in ASTP Report #35
      on “Financial and Actuarial Analysis of the Armenian Pension System”, (Armenia Social Transition
      Program – PADCO/USAID, 2001, see ASTP Reports on www.padco.am).
19
     The ROA Law on “Mandatory Social Contributions” enforcing the current social contribution scheme
      became effective on January 1st, 2001.
20
      Recall that in this section we have released the no-inflation assumption and hence the absolute figure
      presented in Table 7.5. Pension System in Armenia, 2003-2015 (PRSP p. 107) is used.


                                                                                                         19
Although the picture has greatly improved, the ROR is still negative for those earning
between 100 - 400% of the average wage under some indexing options. This scenario does
ensure that pensioners will receive benefits that bring them above the poverty line at the
beginning of their retirement under all indexing rates. The pension/average wage ratio is
comparatively low and worsens with the passage of time for low indexing rates and improves
for high indexing rates. To stabilize this ratio, pensions should increase at a close to average
growth rate of salaries (see Table 5 and Appendix 2).
                                                                                         Table 5
 Pension /
Average Wage     2043      2044    2045      2050     2055     2056     2057     2058     2059
0,5% indexing   4,02%     3,68%   2,96%     2,38%    2,27%    2,18%    2,08%    1,99%    4,02%
1% indexing     4,90%     4,53%   3,73%     3,08%    2,96%    2,85%    2,74%    2,63%    4,90%
2% indexing     7,27%     6,86%   5,93%     5,13%    4,99%    4,84%    4,71%    4,57%    7,27%
3% indexing     10,74%   10,33%   9,39%     8,52%    8,36%    8,20%    8,05%    7,89%   10,74%
4% indexing     15,80%   15,50%   14,78%   14,09%   13,95%   13,82%   13,69%   13,56%   15,80%
This analysis demonstrates that the “rate of return” on social contributions is extremely low,
except for those receiving close to the minimal wage. Low ROR is one of the critical factors
negatively affecting the pension system, since it immediately results in low compliance in
paying payroll contributions. In any pension system the relationship between contributions
paid and benefits received is crucial for system’s financial sustainability and social fairness.
And if high contribution rates and low benefits provide room for financial stability of the
system, these do little for social justice. To ensure fairness of the system, contributors should
receive a much higher return on their contributions. The methodology adopted in this paper
provides a way of defining a benchmark against which to measure improvements resulting
from proposed reforms.

                                  5.       CONCLUSION
This analysis shows that – given our main assumptions -- the Armenian pension system is
fiscally sustainable in the long term. However, there are serious problems with benefit
adequacy, poverty reduction, and social justice that must be addressed if Armenia wants to
have an effective and efficient pension insurance system that provides fair living standards
for pensioners.
To provide the current very low pension benefits, requires a contribution rate of about 25 %.
Except for low-income employees, the “rate of return” on the social contributions paid to the
SSIF is very low causing a low compliance rate. Paying pensions is difficult because of the
lack of employed people (contributors) and low salaries resulting exacerbated by the
immigration of mostly the pension-age population and emigration of mainly the working age
population during past years.
Although strengthening financial situation of the SSIF will allow payment of envisaged
pensions during the coming years, this does not imply that there is no need to further modify
the pension system and how it is administered.
Pension policy should aim at providing adequate pensions to all retirees and establishing
reasonable link between the contributions and pensions. To achieve this, we recommend:
- Introduce a new formula for benefits that links more strongly pensions and contributions.
- Introduce a system of personified records to track wages, contributions and years of
   service for all working people;
- Establish pensions that are adequate to the contributions;



                                                                                                 20
- Take measures (legal and administrative) to improve compliance;
- Increase pensions to improve replacement ratios;
- Put the responsibility for paying privileged pensions on those employers that employ
    people in harmful conditions;
- Index pension benefits to wage growth;
- Define 1-2% ROR on social contributions as PRSP monitoring indicator for assessing
    efficiency of SSIF performance in regard to pension insurance programs.
It is apparent that only economic growth in Armenia can guarantee the improvement of the
social status of pensioners. Adequate pensions ensuring a high “return rate” may prevent the
pensioners from poverty. We believe these recommendations may significantly contribute to
the improvement of pension insurance system in Armenia.




                                                                                         21
                                                                                                                                                                                             APPENDIX 1
SUMMARY OF FINDINGS

The chart below highlights key results of our analysis of Armenia’s pension insurance system for the period 2002-2077.
                            2002      2003      2004       2005       2006       2007       2008       2009       2010       2015        2020        2030        2040        2050        2060        2070         2077
 Total Population (000)     3,008.6   3,016.1   3,028.6   3,046.1    3,068.9    3,097.0    3,127.2    3,159.5    3,192.8     3,360.0     3,481.2     3,573.6     3,707.4     3,759.4     3,781.2     3,809.2      3,803.2

 0 - 14                     731.7     701.9     678.1      659.5      644.3      637.9      641.5      655.2      670.3      751.4       833.8       689.2       731.4       754.4       713.3       764.0        746.9

 15 - Ret. Age              1,808.7   1,864.5   1,915.0   1,958.2    2,008.3    2,060.8    2,096.0    2,118.9    2,143.9     2,220.2     2,189.7     2,272.8     2,345.5     2,282.1     2,261.0     2,304.3      2,257.7

 Retirement Age +           468.2     449.7     435.5      428.5      416.2      398.2      389.7      385.5      378.6      388.4       457.6       611.6       630.6       722.9       806.9       740.9        798.5

 Share (%)
  0 - 14                    24.3%     23.3%     22.4%      21.7%      21.0%      20.6%      20.5%      20.7%      21.0%      22.4%       24.0%       19.3%       19.7%       20.1%       18.9%       20.1%        19.6%

  15 - Ret. Age             60.1%     61.8%     63.2%      64.3%      65.4%      66.5%      67.0%      67.1%      67.1%      66.1%       62.9%       63.6%       63.3%       60.7%       59.8%       60.5%        59.4%

  Ret. Age +                15.6%     14.9%     14.4%      14.1%      13.6%      12.9%      12.5%      12.2%      11.9%      11.6%       13.1%       17.1%       17.0%       19.2%       21.3%       19.5%        21.0%


 Population Dependency      102.5%    96.4%     93.8%      91.4%      89.6%      87.6%      85.9%      84.6%      83.6%      78.8%       80.1%       76.9%       68.5%       64.5%       60.1%       51.0%        48.1%
 Ratio
 System Dependency          25.9%     24.1%     22.7%      21.9%      20.7%      19.3%      18.6%      18.2%      17.7%      17.5%       20.9%       26.9%       26.9%       31.7%       35.7%       32.2%        35.4%
 Ratio

 Total Contributors (000)   760.5     562.0     578.2      594.5      610.3      625.9      640.6      654.6      669.3      749.8       813.4       923.1       1,043.0     1,122.0     1,190.0     1,270.8      1,324.5

 Effective Contributors     470.0     497.5     511.9      526.4      540.5      554.4      567.5      580.0      593.1      665.0       722.2       821.5       930.4       1,003.2     1,066.0     1,140.0      1,189.6

 Old Age Pensioners         383.5     378.8     376.5      375.3      375.7      374.4      373.5      374.6      377.7      400.9       456.2       502.7       499.5       521.3       511.3       456.7        455.3

 Disabled                    68.2      69.4      70.7      71.9       73.2        74.5       75.8       77.3       78.7       82.8        84.6        89.7        92.7        89.3        87.7        82.2         78.4

 Survivors & Orphans         10.7      10.4      10.2      10.1       10.1        10.1       10.3       10.5       10.6       11.1        11.6        10.8        10.7        11.2        10.8        11.2         11.2

 Long Service                19.5      21.0      22.5      23.8       25.1        26.5       27.6       28.5       29.0       28.9        26.1        28.9        34.3        25.5        30.6        30.9         26.9

 Total Beneficiaries        481.8     479.6     479.9      481.2      484.1      485.6      487.3      490.9      496.1      523.8       578.5       632.1       637.3       647.3       640.5       581.0        571.7


 Current Balance            1,163.7   3,187.1   4,246.0   5,525.5    6,560.5    7,822.5    9,059.3    10,110.7   11,013.4   14,933.8     4,341.7     5,269.9    16,256.3    23,411.6    33,361.4    56,887.2     67,034.3

 Fund Reserve               1,163.7   4,316.8   8,437.1   13,716.8   19,877.8   27,121.3   35,390.7   44,470.5   54,188.7   110,779.3   137,875.6   135,788.5   207,040.1   347,200.8   524,370.3   846,271.8   1,150,797.6


 Total Revenue              37,536    43,929    49,235    54,653     60,022     65,935     71,419     76,757     82,569     115,075     135,876     219,136     341,330     504,510     703,174     967,030     1,191,760

 Total Revenue % GDP         2.8%      3.1%      3.2%      3.4%       3.5%       3.6%       3.7%       3.8%       3.9%        4.3%        4.2%        4.8%        5.5%        6.2%        6.7%        7.3%         7.8%

 Total Expenditure          36,372    40,646    44,730    48,615     52,638     56,866     60,602     64,322     68,618      93,144     128,485     207,191     293,104     415,147     542,108     625,555      727,874

 Total Expenditure %         2.7%      2.8%      2.9%      3.0%       3.1%       3.1%       3.2%       3.2%       3.2%        3.4%        3.9%        4.6%        4.8%        5.1%        5.2%        4.7%         4.8%
 GDP
                                                                                                                                                                                                                    APPENDIX 2
 Rate of Return on Social Contributions
                                   2002       2003       2004       2005       2006       2009        2012        2015        2020        2030        2040        2041        2042        2043          2045          2050          2055          2059
Inflation                          2.30%      3.40%      3.00%      3.00%      3.00%       3.00%       3.00%       3.00%       3.00%       3.00%       3.00%       3.00%       3.00%        3.00%         3.00%         3.00%         3.00%         3.00%
food line of poverty              7,576.0    7,632.0    7,827.0    8,002.0    8,207.0     8,836.0     9,469.0    10,169.0    11,227.4    13,686.1    17,357.3    17,017.0    17,357.3     23,265.9      24,682.8      28,614.2      33,171.7      37,335.0
consumer line of poverty         12,358.0   12,450.0   12,767.0   13,053.0   13,387.0    14,414.0    15,446.0    16,588.0    18,314.5    22,325.3    28,313.8    27,758.7    28,313.8     37,952.1      40,263.4      46,676.4      54,110.7      60,902.1
average wage                     26,488.0   29,462.0   32,078.0   35,048.0   38,235.0    48,927.0    59,609.0    71,607.0    94,589.9   160,384.5   269,837.4   284,125.5   299,146.9    314,937.9     348,983.2     450,465.3     580,326.4     709,695.2
average contribution              6,767.8    7,446.2    7,920.4    8,457.8    9,033.6    10,960.2    12,882.5    15,037.4    19,026.2    24,830.8    33,587.0    34,730.0    35,931.8

Base Scenario
                                                                                                                                                                                         314,937.9     348,983.2     450,465.3     580,326.4     709,695.2
pension - 0.5% indexing                                                                                                                                                                   11,280.1      11,393.2      11,680.9      11,975.9      12,217.2
Pension as % of AW                                                                                                                                                                          3.58%         3.26%         2.59%         2.06%         1.72%
pension / extreme poverty line                                                                                                                                                             48.48%        46.16%        40.82%        36.10%        32.72%
pension / poverty line                                                                                                                                                                     29.72%        28.30%        25.03%        22.13%        20.06%
contribution // pension          74,237.8   81,678.8   86,881.0   92,775.4   99,091.1   120,224.5   141,310.6   164,948.7   208,701.9   272,373.6   368,422.4   380,960.8   394,142.6    132,743.8     126,660.6     108,453.8      84,206.5      64,255.3
pension - 1% indexing                                                                                                                                                                     13,757.1      14,033.6      14,749.5      15,501.8      16,131.3
Pension as % of AW                                                                                                                                                                          4.37%         4.02%         3.27%         2.67%         2.27%
pension / extreme poverty line                                                                                                                                                             59.13%        56.86%        51.55%        46.73%        43.21%
pension / poverty line                                                                                                                                                                     36.25%        34.85%        31.60%        28.65%        26.49%
contribution // pension          74,237.8   81,678.8   86,881.0   92,775.4   99,091.1   120,224.5   141,310.6   164,948.7   208,701.9   272,373.6   368,422.4   380,960.8   394,142.6    161,892.5     156,014.4     136,944.5     108,998.9      84,841.2
pension - 2% indexing                                                                                                                                                                     20,402.3      21,226.5      23,435.8      25,875.0      28,008.0
Pension as % of AW                                                                                                                                                                          6.48%         6.08%         5.20%         4.46%         3.95%
pension / extreme poverty line                                                                                                                                                             87.69%        86.00%        81.90%        78.00%        75.02%
pension / poverty line                                                                                                                                                                     53.76%        52.72%        50.21%        47.82%        45.99%
contribution // pension          74,237.8   81,678.8   86,881.0   92,775.4   99,091.1   120,224.5   141,310.6   164,948.7   208,701.9   272,373.6   368,422.4   380,960.8   394,142.6    240,092.5     235,979.5     217,594.5     181,936.4     147,305.6
pension - 3% indexing                                                                                                                                                                     30,141.2      31,976.8      37,069.9      42,974.2      48,367.8
Pension as % of AW                                                                                                                                                                          9.57%         9.16%         8.23%         7.41%         6.82%
pension / extreme poverty line                                                                                                                                                            129.55%       129.55%       129.55%       129.55%       129.55%
pension / poverty line                                                                                                                                                                     79.42%        79.42%        79.42%        79.42%        79.42%
contribution // pension          74,237.8   81,678.8   86,881.0   92,775.4   99,091.1   120,224.5   141,310.6   164,948.7   208,701.9   272,373.6   368,422.4   380,960.8   394,142.6    354,699.7     355,492.5     344,183.0     302,166.5     254,386.6
pension - 4% indexing                                                                                                                                                                     44,361.4      47,981.3      58,376.6      71,024.1      83,088.1
Pension as % of AW                                                                                                                                                                         14.09%        13.75%        12.96%        12.24%        11.71%
pension / extreme poverty line                                                                                                                                                            190.67%       194.39%       204.01%       214.11%       222.55%
pension / poverty line                                                                                                                                                                    116.89%       119.17%       125.07%       131.26%       136.43%
contribution // pension          74,237.8   81,678.8   86,881.0   92,775.4   99,091.1   120,224.5   141,310.6   164,948.7   208,701.9   272,373.6   368,422.4   380,960.8   394,142.6    522,041.9     533,417.5     542,009.4     499,395.1     436,995.2
      +
PRSP Scenario

pension - 0.5% indexing                                                                                                                                                                    47,489.7      47,965.8      49,177.0      50,418.8      51,434.8
Pension as % of AW                                                                                                                                                                          15.08%        13.74%        10.92%         8.69%         7.25%
pension / extreme poverty line                                                                                                                                                             204.12%       194.33%       171.86%       151.99%       137.77%
pension / poverty line                                                                                                                                                                     125.13%       119.13%       105.36%        93.18%        84.45%
contribution // pension          74,237.8   81,678.8   86,881.0   92,775.4   99,091.1   120,224.5   141,310.6   164,948.7   208,701.9   272,373.6   368,422.4   380,960.8   394,142.6     558,855.6     533,245.2     456,593.9     354,512.2     270,517.0
pension - 1% indexing                                                                                                                                                                      54,569.3      55,666.2      58,505.7      61,490.1      63,986.8
Pension as % of AW                                                                                                                                                                          17.33%        15.95%        12.99%        10.60%         9.02%
pension / extreme poverty line                                                                                                                                                             234.55%       225.53%       204.46%       185.37%       171.39%
pension / poverty line                                                                                                                                                                     143.78%       138.25%       125.34%       113.64%       105.07%
contribution // pension          74,237.8   81,678.8   86,881.0   92,775.4   99,091.1   120,224.5   141,310.6   164,948.7   208,701.9   272,373.6   368,422.4   380,960.8   394,142.6     642,167.6     618,851.3     543,207.9     432,358.2     336,533.4
pension - 2% indexing                                                                                                                                                                      71,904.3      74,809.2      82,595.4      91,192.0      98,709.2
Pension as % of AW                                                                                                                                                                          22.83%        21.44%        18.34%        15.71%        13.91%
pension / extreme poverty line                                                                                                                                                             309.05%       303.08%       288.65%       274.91%       264.39%
pension / poverty line                                                                                                                                                                     189.46%       185.80%       176.95%       168.53%       162.08%
contribution // pension          74,237.8   81,678.8   86,881.0   92,775.4   99,091.1   120,224.5   141,310.6   164,948.7   208,701.9   272,373.6   368,422.4   380,960.8   394,142.6     846,164.3     831,668.5     766,873.9     641,203.1     519,153.0
pension - 3% indexing                                                                                                                                                                      94,491.4     100,245.9     116,212.5     134,722.2     151,631.0
Pension as % of AW                                                                                                                                                                          30.00%        28.73%        25.80%        23.21%        21.37%
pension / extreme poverty line                                                                                                                                                             406.14%       406.14%       406.14%       406.14%       406.14%
pension / poverty line                                                                                                                                                                     248.98%       248.98%       248.98%       248.98%       248.98%
contribution // pension          74,237.8   81,678.8   86,881.0   92,775.4   99,091.1   120,224.5   141,310.6   164,948.7   208,701.9   272,373.6   368,422.4   380,960.8   394,142.6   1,111,967.7   1,114,453.2   1,078,998.5   947,278.6     797,490.8
pension - 4% indexing                                                                                                                                                                     123,846.4     133,952.3     162,973.5     198,282.2     231,962.1
Pension as % of AW                                                                                                                                                                          39.32%        38.38%        36.18%        34.17%        32.68%
pension / extreme poverty line                                                                                                                                                             532.31%       542.69%       569.56%       597.75%       621.30%
pension / poverty line                                                                                                                                                                     326.32%       332.69%       349.16%       366.44%       380.88%
contribution // pension          74,237.8   81,678.8   86,881.0   92,775.4   99,091.1   120,224.5   141,310.6   164,948.7   208,701.9   272,373.6   368,422.4   380,960.8   394,142.6   1,457,415.5   1,489,173.4   1,513,160.0   1,394,191.1   1,219,985.6

								
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