New Maximum Threshold for Social Payments Under the Armenian Law on Accumulated Pensions Effective July 1

Arkadi Khachatryan, a member of the Armenian National Assembly from the 'Enlightened Armenia' faction, made a post on his Facebook page outlining the upcoming changes to accumulated payments starting from July 1, 2020. He particularly noted that employees earning a monthly salary of up to 500,000 AMD will see no changes in their situation; they will continue to pay 5% of their salary as a social payment, with an equivalent amount allocated from the state budget.

Khachatryan's post reads as follows:

“Dear compatriots, I want to inform you that starting from July 1 of this year, a new maximum threshold for the calculation of social payments set by the Armenian Law on Accumulated Pensions will be implemented. This new threshold will be 15 times the legally established minimum monthly salary (68,000 AMD × 15 = 1,020,000 AMD) instead of the previous maximum monthly threshold of 500,000 AMD.

What does this mean? Initially, I would like to clarify that the analysis presented below does not take into account the fact that part of the social payments from citizens during the grace period before the income tax reduction will be covered by the state.

As of July 1, if an employee was making social payments equivalent to 5% of their salary (but not exceeding 25,000 AMD) until this date, any employee earning more than 500,000 AMD per month will start paying a social payment based on 10% of their salary, minus the 25,000 AMD, but capped at 77,000 AMD. This means the maximum threshold for social payments that such an employee will be accountable for will increase from 25,000 AMD to 77,000 AMD.

Moreover, the maximum amount allocated from the state budget remains at 25,000 AMD. This indicates that individuals earning more than 500,000 AMD will begin to pay social payments exceeding 5% of their salaries (calculated as 10% of their salary minus 25,000 AMD), but will not exceed 77,000 AMD instead of the previous 25,000 AMD. For example, if a person earns 1,020,000 AMD monthly, their social payment will amount to 77,000 AMD or approximately 7.55% of their monthly salary, compared to the previously paid 2.45%.

For those who earn more than 1,020,000 AMD monthly, whether their salary is 5 million AMD or 10 million AMD, the maximum monthly social payment they will need to pay will remain 77,000 AMD. Thus, the percentage of their salary represented by the social payment will be lower than 7.55%. For instance, if someone earns 5 million AMD, the effective percentage would be 1.54% instead of 7.55%.

In summary, starting from July 1, 2020:

1. Employees earning up to 500,000 AMD monthly will see no changes; they will continue to make social payments of 5% of their salary, and an equal amount will be allocated from the state budget.
2. Employees earning between 500,000 AMD and 1,020,000 AMD monthly will begin to pay social payments ranging from 25,000 to 77,000 AMD (approximately 5% to 7.55% of their monthly salary, depending on their salary amount), instead of the previous maximum of 25,000 AMD. The maximum allocation from the state budget will remain at 25,000 AMD.
3. Employees earning more than 1,020,000 AMD will start paying a maximum monthly social payment of 77,000 AMD, which will be a lower percentage of their salary compared to the previously applicable rate.

Therefore, the changes in accumulated payments starting from July 1, 2020, will primarily affect those of our citizens who earn more than 500,000 AMD monthly (in terms of reduced disposable income), while those making above the threshold of 1,020,000 AMD will experience a decreased burden in relative terms.