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What will happen to the UAPF savings?

The Capital newspaper published an article on the pension system reform. Thus, the UAPF Board Chairman Zhanat Kurmanov informed that the working group headed by the Deputy Prime Minister of Kazakhstan Berdibek Saparbayev paid special attention to the issue of early use of part of pension savings for the purchase of housing, education and medical purposes.
What will happen to the UAPF savings?

An exchange of ideas on new initiatives related to the pension system took place at the Community Board of the Unified Accumulative Pension Fund (UAPF).

“The analyzed international experience preliminary shows that if depositors do not have enough savings in their pension fund to ensure an adequate replacement rate (when the pension is at least 40% of the salary - Edit.), an early withdrawal of funds is not allowed in any country. Their further saving and investment is ensured,” said Zhanat Kurmanov.

The calculations of international organizations, including OECD also show that minimum contributions to a pension fund should be at least 13%, the UAPF executive added. In this case only, with a 40-year participation in the APS, the accumulated pension will be at least 30% of earned income, subject to regular contributions to the UAPF.

The analysis of experience of 37 countries with advanced pension systems has shown that, their citizens' deductions for future retirement are 17% on average, noted Zhanat Kurmanov. The amount of deductibles in OECD countries on average reaches 20%. “I repeat, in Kazakhstan such deductions are two times lower than in OECD countries. The calculations under these conditions confirm that the early withdrawal of pension savings for additional purposes will be difficult to implement in our country,” said the head of UAPF.

Nevertheless, he added, the discussion of possibility of early use of part of pension savings continues. First of all, the question of using part of the savings to purchase a home is being considered.

“International practice provides that if a person has not resolved his housing problem before retiring, then, of course, his expenses will usually be higher than for a pensioner who has housing. Do not forget, however, that a sufficient amount of pension savings is very difficult to ensure without appropriate targeted contributions to the fund, such as in Singapore. Most likely, 10% deductions to the UAPF for a wide circle of citizens will not be enough to resolve the housing issue,” said Zhanat Kurmanov.

The UAPF also answered the question of whether a seriously ill depositor was able to withdraw his savings ahead of schedule. “This issue is under discussion. It is important to understand what medical grounds can give permission for such depositors to early withdraw the funds from UAPF. It should be borne in mind that a guaranteed amount of free medical care is provided in Kazakhstan, as well as covering medical expenses from the Social Health Insurance Fund, including some serious disease treatment. Since there are many appeals from seriously ill patients who want to receive their savings ahead of schedule, this issue is, of course, relevant,” the fund informs.

The members of the Community Board of UAPF insisted that these depositors be allowed to withdraw the full amount of their savings ahead of schedule, and not on a fixed schedule. The Community Board intends to forward this proposal to the Ministry of Health of the Republic of Kazakhstan. “The treatment of diseases that are on the list of guaranteed free medical care needs funds. In addition to treatment, a seriously ill patient spends on food, care, and rehabilitation after operations,” said Alevtina Donskikh, the Community Board Deputy Chairman.

What future holds for the pension annuity market?

The UAPF also informed that during the meetings between the National Bank representatives and fund with the financial market participants the possibility of diversifying the products of life insurance companies in the interests of investors was discussed. The decree by the Board of the National Bank of Kazakhstan No. 194 provides for mutual retirement annuities. The financial market representatives raised the issue of this type of insurance development.

The market participants and UAPF had developed a number of proposals that were already sent to the regulator. “A woman gets insecure when her husband passes away, if she has not worked for a long time or not made contributions to the UAPF, but taken care of her children. There are situations, when a spouse works for a long time, send money to the fund, acquires a retirement annuity, and after a while dies. Therefore, it is proposed to introduce such a mutual annuity that protects the interests of women. The initiative to introduce mutual retirement annuities most likely will be supported and stipulated in the bill,” said Zhanat Kurmanov.

A mutual annuity implies the participation of not one person but of a married couple in the retirement annuity agreement. If a man makes a lot of money, he can buy a mutual annuity that will include his wife. Women retire earlier than men, and a mutual annuity will allow combining the pension savings of spouses and redistribute income under the annuity agreement. If a spouse passes away, his wife will be able to count on the retirement annuity payment.

Let us remind that a retirement annuity agreement can be concludeв by men who have reached 55 years old and women aged 51 years. The minimum threshold for savings in the UAPF is stipulated. The amount of savings in the fund should be at least 10.1 million tenge for men and 13.8 million tenge for women.

The UAPF noted that when purchasing an annuity, not only the amount of savings formed from mandatory contributions to the fund will be recognized. “The amendments have been made to the legislation earlier. They allowed combining mandatory pension contributions, mandatory professional pension contributions and voluntary pension contributions when purchasing an annuity. As a result, as of 2019, the retirement annuity market has begun to rapidly grow,” pointed Zhanat Kurmanov.

Pension payment schedule can be flexible

The fund also commented on the possibility of changing the UAPF payment schedule.

According to Zhanat Kurmanov, firstly, life expectancy has increased in Kazakhstan. Secondly, with consideration to international practice it is proposed to look into the possibility of providing citizens with various options when paying pensions.

“For example, lower or higher payouts are possible. Some depositors believe that upon retirement it would be better if their pension payments (within the framework of the saving system – Edit.) will gradually increase, that is, regular payments of their savings can be distributed unevenly over the years,” the UAPF executive noted.

In accordance with international practice, some depositors agree to receive a smaller pension for the first few years, because at that time they are still able to work, that is, they will be able to earn and need less pension payments. Other depositors, on the contrary, prefer their pension payments to be high in the first years and then gradually reduced, Zhanat Kurmanov explained.

“It means that in the first years they receive a pension slightly higher than in the subsequent ones. Upon retirement such depositors want to spend part of the pension fund savings for example, on treatment. These options can be considered taking into account international practice,” the UAPF executive noted.

The Public Council members also announced other initiatives regarding the UAPF work. All proposals and initiatives will be processed with consideration of investors’ interests, they promised in the fund.

Source: https://kapital.kz/finance/83446/dosrochnoye-iz-yatiye-iz-yenpf-v-chem-slozhnost.html

Photos are from open sources.

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