Question 43. What is a Mandatory Pension Fund?

A mandatory pension fund is an entirety of contributions made by individuals and assets formed as a result of invested contributions. Within the frames of a pension fund, individuals hand over their funds (targeted social contributions) to a professional manager who unifies and manages them as a single portfolio. The right of each participant to the pension fund assets and the income on the return of these assets is certified by the participant’s pension fund share. 

A pension fund has its rules of operation which define how the fund is managed, where the pension funds are invested, how the fund assets are evaluated, what payments are levied, their amount and calculation form and other essential terms. The rules of a pension fund are defined by the given fund manager. They are later written down and published by the RA Central Bank. 

Payments are made to participants from the pension fund (funds equivalent to a participant’s share in the fund assets are returned) in the form of pension benefits after the participant reaches the retirement age. 

Question 44. In what type of pension funds do the managers suggest to invest your targeted social contributions?

Each of the managers suggests three types of pension funds: fixed-income, conservative and balanced. 
Fixed-income fund offers relatively low risk and provides stable, non-high income. Fund assets are totally (for 100%) invested in financial instruments providing stable revenue and having low risk (such as deposits, bonds, etc.). Some participants may prefer this fund if they are not inclined to risk taking and prefer not so high but stable income. 

Conservative fund determines medium risk and can provide relatively high income. Here pension assets are invested in financial instruments providing stable income as well as to some extent (up to 25%) in relatively risky financial instruments, i.e. in stocks. Those participants who are inclined to high revenue and are ready to run the risk may prefer this fund. 

The balanced fund offers relatively high risk and provides higher income. Fund assets are invested in financial instruments providing stable income as well as to some extent (up to 50%) in risky financial instruments. Participants who are inclined to take the risk for receiving higher income may prefer this one. 

Question 45. May an individual be registered with the Registrar of participants as a holder of different accounts at the same time?

No, he may not. Each person is registered with the Registrar of participants as a holder of one pension account which reflects the whole information on person’s fund shares and their value, the fund and the fund manager he has selected. 

Question 46. What is a Pension Fund Share?

Every time the participant makes a targeted social contribution payment to his pension fund, he gains shares of that very pension fund at the amount of his payments. These mandatory pension fund shares are entered into the individual’s personal pension account. 
Pension fund share is the personal property of each participant. Yet, their ownership right is subject to some terminable restrictions defined by the Law. 

Question 47. What is a pension fund custodian and what functions does it perform?

A pension fund custodian is a legal entity operating independently from the fund manager (i.e. the custodian is not affiliated to the fund manager) which is responsible for the custody of pension fund assets, i.e. their safekeeping and separated recordkeeping. So, transactions in the fund assets (entry and exit of funds) can be executed only with the consent of the custodian. The custodian has certain control powers over the manager. This means that the custodian oversees the observance of legislative requirements and the fund rules by the manager and he does not execute the assignments issued by the manager as this would result in violation of legal requirements or the fund rules. 
It is worth mentioning that only banks are entitled to act as pension fund custodians. However, the Law anticipates that during the transition period, i.e. before banks build the necessary capacities for performing the function of a custodian, the function of the custodian for all pension funds (mandatory pension funds) will be performed by the Central Depository of Armenia (CDA) acting as a centralized custodian. 

Question 48. Can a pension fund go bankrupt?

No, a pension fund cannot go bankrupt as it does not have a status of a legal entity. Bankruptcy of a pension fund manager does not imply a bankruptcy of a pension fund. Pension assets are not jeopardized even if the manager goes bankrupt because these assets are owned by the participants and they are not part of the manager’s property. Separate Recordkeeping is maintained for the pension assets by the fund custodian in case the manager goes bankrupt. 
The custodian is required to transfer the fund to another fund manager within timeframes specified by the Law. 

Question 49. Can a participant choose a specific investment method or decide on the policy of investing his funds?

The participant cannot directly decide on the policy for investing his assets. However, as each pension fund is managed under an investment policy approved and published by the fund manager in advance, each participant can select a preferred investment policy by choosing a specific pension fund operated by a particular manager. The permissible investments of pension funds and investment limits are defined by the RA Law “On Funded Pensions” and by the RA Government Decision № 1685-N made on 27.12.2012.