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Four ways: what the retirement money can also be spent for

There are several ways to use part of pension savings ahead of schedule in Kazakhstan. LS prepared an overview of each of them.
Four ways: what the retirement money can also be spent for

I. Retirement annuity

As of this January, Kazakhstanis can conclude a deferred retirement annuity agreement with life insurance companies. A deferred retirement annuity is a product that allows transfer savings to a life insurance company from the age of 45 and start receiving payments from them up to retirement.

The sufficiency amount for a retirement annuity has almost halved this year as well. Now 55-year-old men can purchase this product for 6.7 million tenge (in 2020 - 11.3 million tenge) and women aged 51.5 - for 9 million tenge (15.5 million tenge). When buying a deferred retirement annuity at the age of 45 with payments starting from the age of 55, a man has to have at least 6.1 million tenge, and woman - 7.7 million tenge.

“The decision to lower the threshold was made in order to expand the category of those clients who could now conclude a retirement annuity agreement using savings. There is one point though: the monthly payments under the contract for these people will be postponed for up to 10 years. That is, the payments will start only when the client reaches the age of 55,” they noted in Halyk-Life.

The company also listed the main advantages of this product as follows:

- Ability to receive monthly payments under the contract before the retirement age;

- Lifetime annuity payments;

- Annual indexation of annuity payments by 5%;

- Ability to set a guaranteed payment period for heirs;

- Opportunity to receive pension payments from three sources at once: basic pension, annuity payments, payments from the UAPF formed after the conclusion of the retirement annuity agreement before retirement;

- After the retirement annuity agreement conclusion, the client can spend the entire balance of savings in the UAPF on housing improvement, medical treatment or transfer to trust management.

Thus, the LIC Eurasia executive Gulmira Ubegaliyeva predicts that the share of Kazakhstanis using this product this year may increase by at least 15%.

In turn, the Nomad Life specialists believe that the retirement annuity premiums in the life insurance market in 2021 may be doubleв or tripled.

The State Annuity Company representatives note that this year it is planned to introduce joint retirement annuities for several family members. Within the framework of this product, legal spouses will be able to pool their savings.

“The sufficiency threshold was set on the basis of special actuarial calculations with the condition that the insurance company could form reserves for making lifelong payments to a person taking into account the annual indexation. Today, the minimum monthly annuity payments must be at least 70% of the subsistence minimum. In order to ensure monthly receipt of money, the minimum amount is calculated for transferring funds from the UAPF to the LIC. If the threshold amount is reduced, then it is necessary either to reduce the amount of monthly payments, or increase the risk of depletion of the reserves of the insurance company,” the company explained.

The Freedom Finance Life specialists stressed, however, that retirement annuities are only getting popular in Kazakhstan.

“The main problem of this product publicity in the country was the sufficiency amount of retirement savings that made it possible to conclude an agreement, for men - 11.3 million tenge, for women - 15.5 million tenge. Deferred retirement annuity has appeared this year. To conclude an agreement, it is enough for men to have 6.1 million tenge of savings in the UAPF, and women - 7.7 million tenge. Changing the conditions makes the retirement annuity more affordable, and therefore, popular for the majority of the population. All these options contribute to the development of the pension system and allow people to choose the most suitable option based on their goals and opportunities,” the company informed.

II. Buying a home, initial installment, mortgage refinancing, or apartment renovation

As of early 2021, people in Kazakhstan are allowed to early withdraw a part of their pension savings for improvement of their living conditions. It is necessary that depositor’s funds surpass the sufficiency threshold, which is calculated depending on age. The surplus amount can be used for the following purposes:

- Partial or full repayment of mortgage debt;

- Purchase of a residential property (in the primary or secondary markets);

- Initial installment on a mortgage;

- Partial or full repayment of debt under long-term residential lease agreements with a purchase option;

- A free-standing residential building development;

- A mortgage loan refinancing.

Otbasy Bank is appointed as the operator for the targeted use of pension funds. In addition, Narodny, AltynBank and Bank CenterCredit have signed a liaison agreement with the UAPF; they are operators for application of funds for home purchase.

Detailed instructions on how to withdraw retirement money for housing improvement is given below.

III. Transfer to private management companies

There are no set rules and a register of private companies today in Kazakhstan, which a part of pension savings can be transferred to. The Financial Market Regulatory Agency announced the approximate parameters that the above organizations must comply with.

Thus, the size of equity capital, experience in managing customer assets and positive results of financial and economic activities following the results of the last few years, as well as the presence of a major shareholder, will be taken into account. In addition, there must be no evidence of violations of prudential regulations, unfulfilled supervisory responses, or evidence of unfair behavior in the securities market.

Besides, a list of financial instruments has been worked out, in which the pension assets can be invested taking into account their credit quality. The list includes government securities of Kazakhstan and foreign countries, equity and debt non-government securities issued by both local and foreign organizations, as well as deposits in local financial institutions and non-resident banks. The investment limits will be set: in one issue of financial instruments, in financial instruments issued by one organization and its affiliates, as well as denominated in foreign currency.

IV. Medical treatment

The rules on the use of part of pension savings for medical treatment have not yet been approved. However, Otbasy Bank has already been appointed as the operator for the planned use. The resolution of the Ministry of Health listed the types of medical services covered by pension payments, in particular, the treatment of orphan diseases; dental services; diseases requiring radio-surgical treatment (gamma knife, cyberknife); medical rehabilitation in domestic organizations, including health resort treatment, and so on.


Photos are from open sources.

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