Question 70. What is the formula of calculating the state pension of individuals born before 1974?

Individuals born before 1974 will receive pension from PAYG pension system. Their pensions will be calculated according to the formula established by the RA Law “On State Pensions” (see Question 3). Those born before 1974 may take part in the mandatory or voluntary funded pension funds, and get mandatory or voluntary funded pensions, in addition to their state pension. 

Question 71. Will the RA Government set out the size of mandatory funded pensions?

No, the RA Government will not set out the size of mandatory funded pensions because the amount of the funded pension depends on and is paid out of the accumulated funds gained solely throughout the individual’s employment career, the funded contributions paid from his basic income and return on his managed pension fund shares. 

Question 72. Will a participant of mandatory pension fund (born after January 1st , 1974) receive pension from PAYG pension system as well?

Yes, participants of mandatory pension fund will also receive pension from PAYG system, on a general basis (see Question 2).

Question 73. What is the calculation form of the state pension for participants of accumulative component?

The calculation of the state pension of a participant of accumulative component is done on a general basis, i.e. the basic pension amount, the number of eligible years of service and the compensation amount for each ensured service year are taken into account. 
On calculating labor pension of funded pillar participants born on or after January 1st, 1974, the number of eligible years of service prior to January 1st, 2014 is also registered except for the case of calculating pensioner’s personal coefficient. 

For instance, if a person has 30 years of total service of which 12 is up to 2014, then upon retirement he will receive compensation from accumulative component for those 12 years of service. 

Question 74. When will a funded pension participant be eligible for his funded pension?

A participant becomes eligible for his funded pension, when:

• he/she reaches the state pension age,
• he/she is 55 years old and the total estimated cost of the pension fund shares in his/her personal pension account is enough for purchasing life annuity not less than 5-fold amount of the basic pension.  

Question 75. Who should a participant apply to for receiving his funded pension?

A participant is required to apply to the Registrar of participants to get his funded pension. Thus, he can find out the amount of the funded savings in his personal pension account and therefore, choose the way he wants to get his pension: lump-sum payment, annuity or program withdrawal. 

Question 76. What are the ways of providing funded pensions to the participants of the funded component?

The form of receiving funded pension depends on the level of the available balance of the participant’s pension account. Thus, as soon as the participant hits the retirement age, he/she may receive his/her funded pension in three forms: 
• Annuity, 
• Lump-sum payment, 
• Program withdrawal. 

Question 77. What is Annuity?

Annuity is the amount paid to the individual by the insurance company during a certain period of time, at a certain frequency against the transferred lump-sum amount. In case of an annuity, an agreement is made between the participant and the insurance company to which the available balance of the participant’s pension account is transferred. 

Question 78. In which cases is Annuity mandatory?

If the funded pension savings of the individual are evenly divided into monthly payments and each monthly payment is above 75 percent of the basic pension, the participant must select the insurance company and enter into an annuity agreement with him. 
  
To this purpose the participant must file a written request with the Registrar of participants (at the page “My Account” or at the Account Operators) which in its turn, must transfer the available balance of the participant’s individual account to the selected insurance company within 10 working days. Within 7 days after the receipt of the funds the insurance company is required to inform the participant in written form about the receipt of the fund and their value. 
  
The insurance company will start paying the annuity under the terms and conditions of the annuity agreement after it receives the pension savings.  

Question 79. What are the types of annuities?

The following 2 types of annuities are specified by law: 
• annuities guaranteed for 5 or 10 years 
• joint annuities guaranteed for 5 or 10 years. 

The first type of annuities is paid for the life term. However, if an individual dies before the completion of the 10 or 5 years’ guaranteed period, his/her heirs have the right to withdraw the outstanding of the annuity from the insurance company. 

Joint annuities are paid for the life term to the individual to whom the annuity is assigned. After the death of the beneficiary it is paid to the survivor spouse for his or her life term at the amount specified in the annuity agreement. If both spouses die during the guaranteed period, their heirs may receive the outstanding amount of the annuity.  

Question 80. What are the essential terms of an annuity agreement?

An annuity agreement concluded with the insurance company should specify the type of annuity, the age of the participant (pension beneficiary), the amount transferred to the insurance company, the size of the payable annuity, the timing and frequency of payments, the responsibility of the insurance company for infringing the provisions of the annuity agreement and other essential terms. 

Question 81. Can an individual terminate the existing annuity agreement and enter into a new annuity agreement with another insurance company?

Yes, if the insurance company has infringed the provisions of the annuity agreement. Where the insurance company fails to pay the annuity in two successive cases, the pension beneficiary may terminate the annuity agreement at his own discretion along with requesting indemnification of his incurred losses and refund the outstanding amount. The outstanding amount of the annuity will not be provided to the beneficiary in the form of a lump-sum payment. He must enter into a new annuity agreement with another insurance company, and the outstanding amount will be transferred to the account of the new insurance company. 
  
The issue of paying annuities in cases when an insurance company goes bankrupt will be regulated by the legislation on insurance companies. Specifically, on the consent of the Central Bank of Armenia the entire portfolio of the insurance company will be transferred to another insurance company which will be acting as the legal successor of the failed company and will continue paying the annuity under the annuity agreement. 

Question 82. How will the individual’s funded pension savings be managed if the individual dies during the period of receiving annuities?

When the beneficiary dies while receiving annuities but after the completion of the guaranteed period for paying annuities, the funded pension savings will be maintained by the insurance company. If the beneficiary dies before the completion of the guaranteed period as specified in the annuity agreement, the insurance company must calculate and return to the beneficiary’s heirs the outstanding amount payable during the guaranteed period.

Question 83. What is a Program Withdrawal and what are the bases for its payment?

A program withdrawal is a pension paid to the individual on a monthly basis from the funds accumulated on his pension account which is distributed by the number of months of the average life expectancy. 
  
The Law has set out the case where a participant can receive his/her pension in the form of a program withdrawal. It says: if a participant’s funded pension savings are divided into equal monthly payments and these payments are less or equal to 75 percent of the basic pension then the participant is entitled to receive his funded pension in the form of program withdrawals. 

Question 84. What is a lump-sum payment and what are the bases of its payment?

A lump-sum payment is the lump-sum withdrawal of the individual’s total pension account balance by the participant when he reaches the retirement age. 
  
If a participant’s accumulated pension savings are evenly divided into monthly payments and these payments are equal or below 75 percent of the basic pension, then the participant has the right to receive his accumulated pension savings by a lump-sum payment. 
In addition, if a participant’s accumulated pension savings are evenly divided into monthly payments and the monthly payment exceeds the 5-fold amount of the basic pension, the participant is required to conclude an annuity agreement providing the 5-fold amount of the basic pension and may get the rest of the money by a lump-sum withdrawal. 
  
Besides the above-mentioned cases, the balance available at the participant’s pension account may be paid to the participant in the form of a lump-sum payment if: 

• the participant is recognized disabled with a 3rd group limited working capacity before hitting the retirement age; 
• the participant is in critical condition and his/her vital organs are terminally affected. 
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