Retirement annuity is an insurance product that allows people with sufficient amount of savings in the UAPF to transfer them to a life insurance company and start receiving payments from pension savings before their official retirement. According to the Agency for the Regulation and Development of the Financial Market of the Republic of Kazakhstan, about 61 thousand people have concluded retirement annuity agreements today for a total of 283 billion tenge.
Reforms in pension legislation
Zhanar Zhubaniyazova, the Board Chairman of JSC Halyk-Life, said that in order to stimulate the economic development of the country, the law on the restoration of economic growth was adopted in early 2021. “The law in pension provision has made significant changes regarding the conclusion of retirement annuity agreements. In particular, the age of potential clients for concluding a retirement annuity agreement was reduced, as well as the amount of savings sufficient such agreement conclusion,” she said.
The changes made it possible to expand the age range for Kazakhstanis employed at work with harmful working conditions and wishful to conclude a retirement annuity agreement. “These citizens can conclude a contract at the age of 40 if their mandatory professional pension contributions have been paid in total for at least 60 calendar months, and they have a sufficient amount of savings in the UAPF to ensure payment of at least 70% of the subsistence minimum established for the corresponding financial year. Previously, the permissible age for this category of citizens was 50 years. However, the start of payments under such contracts has been postponed for 10 years. That is, the clients will be able to receive payments under the annuity agreement only upon reaching the age of 50,” Zhubaniyazova emphasized.
Gulmira Ubegaliyeva, the Chairman of the Board of LIC Eurasia, notes that the next category of clients who can conclude a retirement annuity agreement with life insurance companies are men and women who have reached the age of 45 and have sufficient savings in the UAPF. “The main condition in this category is also the availability of a sufficient amount of pension savings in the UAPF, which will provide annuity payments in the amount of at least 70% of the subsistence minimum,” Ubegaliyeva said.
“The funds transferred under the retirement annuity agreement cannot be used for other purposes. The retirement annuity agreement is concluded for a lifetime with a guaranteed indexation rate, lifetime obligations of the insurance company to make payments. Accordingly, the right of the insured to withdraw funds from the insurance company is legally limited, since their purpose is socially aimed at ensuring a decent level of the insured's pension,” said Kairat Chegebayev, the Board Chairman of JSC Nomad Life.
How to conclude a retirement annuity agreement?
According to Kairat Chegebayev: “To conclude a contract, you need: an application for insurance, copy of the identity card of the person concluding the agreement, and those persons who will receive payments if he dies, an UAPF account statement and details of the account to which the annuity payments are made”.
The CEO of JSC LIC Eurasia Gulmira Ubegaliyeva adds: “When moving from one life insurance company to another it is necessary to have a certificate on cash surrender value. If this value turns out to be insufficient to conclude an agreement, the UAPF statement on the amount of compulsory/voluntary pension contributions is needed, so that the amount of insurance premium under the retirement annuity agreement ensures payments in the amount of at least 70% of the subsistence minimum.
What age can I receive the payments from?
“Under concluded classic (immediate) retirement annuity agreements, the payments begin within 10 days from the moment the funds are received by the LIC. Men can apply for retirement annuity from the age of 55, the minimum age for women to conclude such a contract this year is 52 years old and increases annually by six months, i.e. a woman at the time of the agreement conclusion must be: in 2021 - 52 years old, and by 2027 - 55 years old,” the Board Chairman of JSC LIC State Annuity Company Galym Amerkhodzhayev responds.
If the retirement annuity agreement is made at the age of 45, according to the LIC Freedom Finance Life executive Azamat Yerdessov, the lifetime monthly payments will be available for men aged 55, women – aged 52 (by 2027 this age of receiving the first pension payment for women will be increased to the age of 55). The lifetime monthly insurance payments for those who have entered into a contract at the age of 40 will be available from 50 years old.
How has the sufficient amount decreased and how much is it now?
The retirement annuity cost depends on the age at which the client enters into an agreement with the LIC. The amount of sufficiency on retirement annuity last year was 11.3 million tenge for men, 15.5 million tenge for women (men could conclude an agreement and start receiving pension payments from the age of 55, and women from 51.5 years). “The cost of retirement annuity has dropped significantly in 2021. To conclude a contract at the age of 45, the savings in the UAPF have to be not lower than 5.6 million tenge for men, 7.4 million tenge – for women. For those who conclude an agreement with the LIC at 40, the minimum amount for men is 6.9 million tenge, for women - 8.5 million tenge,” Azamat Yerdessov cited examples.
“A significant reduction in the amount of sufficiency, - as the JSC Halyk-Life executive noted, - was achieved by changing the size of the minimum monthly payment under retirement annuity agreements. Such payments must provide clients with at least 70% of the living wage for the current year.”
“The minimum size of monthly insurance payout from an insurance company under retirement annuity agreements has previously been equal to the minimum pension amount,” the SAC executive reminded.
For a more careful family budget planning the Kazakh authorities are designing a project of joint retirement annuities in 2021, but this is another story. Retirement annuity today is a financial instrument with regular lifetime payments with well-defined amounts and guaranteed returns.
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