Mandatory Pension Scheme in Armenia: Impact Assessment

Effective from 2014, new pension scheme will be introduced in Armenia which will affect those under age of 40. The new scheme assumes that each individual will contribute some amount from his/her salary which will be invested and distributed back after retirement. The paper analyses the impact of the new scheme in two directions. First, it tries to uncover the pass-through of the scheme’s impact on macroeconomic variables and particularly on market interest rates. Using vector error correction models (VEC) and informed decision making, we have found that it has downward impact on interest rates of local deposits and treasuries. Using the forecast path of interest rates and portfolio composition, Monte Carlo simulation technique has enabled us to obtain the possible paths of pension wealth portfolio of the average wage individual who will retire on 2038 (first retirees under the system). The pension portfolio value as of December 2037 was used to calculate the annuity payment amount for the retirement period.