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Askar Shakenov: Retirement annuity payments are life-time guaranteed

Askar Shakenov, Managing Director for Insurance of NOMAD LIFE LIC JSC answered our questions about the retirement annuity.
Askar Shakenov: Retirement annuity payments are life-time guaranteed

- What is a retirement annuity and what is the difference from the payment based on Unique retirement savings plan?

- In fact, this is a kind of life annuity pension, the difference is that men can start earning it at 55 years old, and women - at 50. After agreement signing you transfer all your savings from the Unique retirement savings plan to a life insurance company, and the company starts paying you your money. At this a man should have at least 9.1 million tenge at the account of pension capital fund at 55 years old (at the age over 55 years old the required amount decreases), and a woman should have at least 12.6 million tenge at the account of pension capital fund at 50 years (at the age over 50 years old the required amount decreases). A person who has accumulated a certain amount can conclude an agreement with our Company and receive payments for the rest of his life after a certain period of time, usually once a month.

- Why is it more profitable to purchase a retirement annuity? What are the main advantages?

- There are several reasons. At first, all of us want to have a decent retirement in older age, which is provided by obligatory indexation included in the retirement annuity (5% per year), i.е. every 13 years the size of the payment is doubled. For example, if under the annuity contract, today you get 28 thousand tenge monthly, then in 13 years you will receive 56 thousand tenge.  Secondly, payments from the pension capital fund are exhausted in 6-7 years, and payments under the retirement annuity are guaranteed for a lifetime. Thus, for those retirees who plan to live more than 7 years, it is more profitable to use their savings to purchase a retirement annuity. 

- Does the insurance company guarantee the insurance benefit payments under the retirement annuity, taking into account the level of inflation? 

- At conclusion of retirement annuity agreement life insurance companies undertake a commitment for lifetime pension payments in favor of annuity; at this companies use mortality tables and a guaranteed rate of return of 6% (no more) at their calculations. In other words, the companies assume the risks of the possibility that a person will live longer than planned, or the market rates of profitability will decrease. In this case, the warranty is the existing capital of companies, compliance with prudential standards under the supervision and regulation of the National Bank of the Republic of Kazakhstan. It is also important to take into account that inflation, as well as rates of profitability, tend to decline, whereas the LICs guarantee the rate of return and indexation of payments for the entire term.

- Where are retirement annuity insurance premiums invested?

- All insurance companies invest funds in those instruments that are on the list and meet the requirements of the presence of a rating and diversification established by the National Bank. The main investment tools are deposits, bonds, shares, derivative financial instruments, precious metals, etc. However, the results of investment activities of companies are not directly relevant to annuities, since a guaranteed rate of return is considered in the calculation of insurance payments at the time of an annuity pension contract formation.


-Are the savings within the retirement annuity inherited? What does this scheme of inheritance look like?

-In case a guaranteed period term was provided during the formation of a pension annuity contract, then, upon the death of an annuitant, payments will continue in his heirs’ favor. They will receive payments in the same order as it is specified by contract (as an example, for 10-20 years). If you choose the guaranteed period as a term, then, of course, an underwriting rate slightly increases, respectively, the payment is slightly reduced. The insurance company will also manage your money, multiplying them and earning interest. The only difference from the Unique retirement savings plan is that the sum of payments will grow monthly, regardless of whether the insurance company has profit or incurred losses.

-Could you provide a specific example: the amount of pension savings, the age of a depositor, the approximate retirement annuity payments.

- The example: a 56 years old man, pension savings – 15,000,000 tenge, guaranteed period = 10 years, monthly lifetime payment to be accrued = 52,654 tenge, payable (after individual income tax) = 47,465 tenge.

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