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Retirement annuities have become cheaper and more affordable – Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market

The Deputy Chairman of the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market (ARDFM) Maria Khadzhiyeva spoke about the reduction in the cost of retirement annuities. The fact of the matter is that the law on economic growth recovery has brought significant adjustments to the rules for granting a retirement annuity.
Retirement annuities have become cheaper and more affordable – Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market

Thus, the main amendments affected the following:

- changes in the amount of the minimum payment under the retirement annuity agreement from the minimum pension to 70% of the subsistence expenses;

- the possibility of concluding a deferred retirement annuity by the insured starting from 45 years old with the right to receive lifetime monthly insurance payments starting from 55 years for men and 52 years for women (with a further increase in the age for women to 55 years in 2027).

Retirement annuity has become much cheaper

So, if in 2020 the amount of sufficiency for concluding a retirement annuity for 55-year-old men was 11.3 million tenge, and for women aged 51.5 years - 15.5 million tenge, now a man of the same age can purchase an annuity for 6.7 million tenge, and a woman for 9.0 million tenge.

“In the case of acquiring a deferred retirement annuity at the age of 45, with payments starting from the age of 55, a man must have at least 6.1 million tenge, and woman - 7.7 million tenge. In general, about 61 thousand people today have entered into retirement annuity agreements for a total of 283 billion tenge, thereby guaranteeing themselves lifetime pension payments from a life insurance company,” says Maria Khadzhiyeva.

Kazakhstani people with the sufficient pension savings in the UAPF now have the right to decide whether they want to use part of their pension savings to improve housing conditions or pay for medical treatment, or continue saving money for retirement. The temptation to spend part of your savings before retirement is quite strong, but do not forget that upon retirement the incomes decrease. Therefore, it is necessary to think about the options for receiving pension payments even during the period of creation of pension capital, i.e. at working age.

Kazakhstanis may use the right to purchase a retirement annuity from a life insurance company (LIC). The payments from the UAPF depend on regularity, contribution amounts and investment returns that are not predetermined, while a retirement annuity is a financial instrument with defined benefits, i.e. a number of lifetime payments with well-defined amounts and guaranteed returns.

“The payments on retirement annuities are made by the LIC on a monthly basis throughout the life of the insured; they are indexed annually by at least 5%. Besides, it is possible to include the option of a guaranteed payment period, during which the payments under the retirement annuity agreement are made regardless of whether the insured is alive or not,” said Khadzhiyeva.

LICs are licensed and controlled by the state. The payments on retirement annuities are guaranteed at the expense of the Insurance Payment Guarantee Fund, which, in the event of LIC’s liquidation and bankruptcy, ensures uninterrupted payments on retirement annuities and continuity in fulfilling the obligations included in the insurance portfolio.

“In order to extend the line of retirement annuity products in 2021, it is planned to introduce joint annuities implying participation of not just one person but a married couple or close relatives in the retirement annuity agreement. A joint annuity will combine pension savings of close relatives and redistribute income under an annuity agreement. For example, if one spouse does not have enough pension savings to buy an annuity in the LIC, and the other has a surplus, then through a joint retirement annuity, lifelong payments are possible for both of them.

We expect that these innovations will make the retirement annuity agreement an effective tool for planning a pension, similar to pension plans in countries with a developed pension system. This will allow people to choose the option of pension payments based on their goals and needs,” concluded the Deputy Chairman of the financial regulator.

Photo is a courtesy of the ARRFR press service

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