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Employers will pay the UAPF for their employees

The draft Social Code of the Republic of Kazakhstan provides for a new package of measures to improve the efficiency of the pension system. One of them is a phase in of mandatory employer pension contributions (MEPC) from 2023 to 2027. This will allow pay an additional pension payment from the funded system to retirees, the press service of the Ministry of Labor and Social Protection of Population of the Republic of Kazakhstan reported.
Employers will pay the UAPF for their employees

A multi-tier pension system has been formed in Kazakhstan today, it includes basic and PAYG pensions, as well as retirement benefit from the UAPF, formed at the expense of the employee's pension savings.

As you know, the PAYG part of pension decreases annually, since award of pension is based on the employment record worked out only before January 1, 1998, that is, before the introduction of defined contribution pension system. 10% of the employee’s contributions to the UAPF is not enough to ensure an adequate pension.

It should be noted that in world practice a significant role in pension provision is assigned to the employer. For instance, out of 23% of employee's income in Malaysia 12% are contributed to the pension fund by employer and 11% - by employee; in Australia, only the employer pays 9.5%; in Belarus - 29%, of which the employer pays 28%; in Germany - 18.6%, of which the employer pays 9.3%.

The introduction of MEPC in Kazakhstan will make it possible to distribute responsibility for pension provision between the government, employer and employee, and will also help ensure that income lost is replaced with adequate pension payments.

Taking into account the interests of business entities and in order to reduce the employers’ load in the post-COVID period, the draft Social Code of the Republic of Kazakhstan provides for the phase in of MPCs within five years.

This measure is aimed at supporting Kazakhstanis born after 1975, whose pensions will directly depend on their pension contributions. Their pension will consist of three components: a basic pension paid by the state, funded one paid from their contributions to the UAPF, and notional defined component paid from employers' contributions.

The notional defined component includes the advantages of the funded (the period of deductions and their total volume is fixed) and PAYG (the funds received will be used to pay pensions to system participants born after 1975 and reaching retirement age) pension systems.

Photos are from open sources.

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