Armenia Pension and Labor Market Reform

Abstract

The USAID-funded Armenia Pension and Labor Market Reform (PALM) project assists the Government of Armenia (GoA) in pension reform policy and implementation to help individuals, households, and communities better manage social risks including old age, survivors, and disability.  In addition, PALM is building capacity within the State Employment Services Agency (SESA) to provide high quality employment services to vulnerable households.  Project activities are leading to a new multi-pillar pension system that is designed to provide adequate income for Armenia's elderly population in a fiscally sound and sustainable environment.

The Challenge

Armenia has systemic problems with its current pension system. Even though replacement rates are low, the current program is a significant drain on the treasury, underscoring the unsustainable design of the system. Also, because Armenia's population is aging and its birth rate in decline, the pension contributions of fewer workers must support a greater numbers of pensioners.  The GoA has acted to address the weaknesses of the current system by developing a multi-pillar scheme intended to achieve benefit adequacy, fiscal responsibility, sustainability, and public support.  To this end, the development and execution of an implementation program that builds the institutional and human capacity to actually deliver on the intended promises of the reform agenda is of critical importance. At the same time, labor market interventions are necessary to help the government and the most vulnerable individuals mitigate the economic and social consequences of the global economic crisis.  Skills enhancement programs, improvements in the efficiency of the labor market, and the implementation of active employment measures should be achieved to help the greatest number of Armenians maintain gainful employment.

How We Helped

Deloitte works closely with the Ministry of Labor and Social Issues, the State Revenue Committee, and other stakeholders by providing technical assistance to implement the multi-pillar pension reform. Deloitte is assisting the government to:

• Finalize the legal and regulatory framework related to public pension system refinement and the introduction of mandatory and voluntary individual retirement savings schemes
• Conduct an overall estimate of the new pension system's costs
• Finalize the business process design for the State Revenue Committee and other affected entities in order to modernize several administrative and operational systems, particularly the core systems (e.g., those related to tax/social contribution filings and payment, and collection enforcement)
• Improve public understanding and confidence in the new multi-pillar pension system.

To complement this work and support overall labor market reform, Deloitte provides significant assistance to the SESA and other labor market institutions and stakeholders to counter the effects of the economic downturn and catalyze new linkages. In particular, Deloitte works to bridge the operational divide between the local level and the private sector, local authorities, and vocational training institutions to collaboratively address labor market gaps.  In this effort, Deloitte focuses on supporting:

• Implementation of active labor market measures, systemically integrated into SESA and its regional offices, with performance-based monitoring and oversight functions
• Identification and removal of the labor market barriers and inefficiencies that impede job creation
• Redesign of an easily accessible labor market information system that aims to provide information on job growth and demand projections, available employment opportunities, etc.

Increase in employment and economic opportunities for people with disabilities.

Solution

The targeted nature of PALM operations to introduce modernized processes for the administrative and operational systems in a number of pension institutions and related entities can address the missing and contradictory elements in Armenia's pension reform and other laws.  When implemented effectively by the GoA, the cumulative effect of the new multi-pillar pension system may be its ability to provide an adequate income for Armenia's elderly population in a fiscally sound and sustainable environment, with reduced labor market distortions and negative fiscal impacts.  Further, PALM's assistance to the reformed SESA, along with its regional offices, can help SESA take the needed steps to become one of the key players in labor market mediation and workforce development, providing high quality employment services to reduce unemployment and improve the quality of the labor force.

As used in this document, “Deloitte” means Deloitte Consulting LLP, which provides strategy, operations, technology, and human capital consulting services, Deloitte Financial Advisory Services LLP, which provides financial advisory services, and Deloitte & Touche LLP which provides governance and risk oversight and reporting advisory services. These entities are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.