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How to conclude a lucrative retirement annuity contract

According to results of seven months of 2021, annuity insurance continues to be the fastest growing class. The total premiums of life insurance companies (LICs) on annuity insurance increased by 122.5% compared to the same period in 2020 and exceeded 85 billion tenge. All the segments of annuity insurance also retain high dynamic of premiums. Retirement annuities grew by 129.8% in annual terms. According to experts, the demand for retirement annuities will only be growing from year to year.
How to conclude a lucrative retirement annuity contract

According to the UAPF, as of August 1, 41 billion tenge were transferred from the fund to life insurance companies. “Retirement annuity is an internationally recognized alternative to pension fund payments. Life insurance companies usually take responsibility for lifetime benefits, which is why LICs are so popular in the West. Our demand for these services is just emerging,” says a financial analyst Maxim Lynchev.

The advantages of retirement annuity agreements are life-long payments with an annual 5% indexation. Thanks to the retirement annuity agreement, the payee will not face the problem of lack of funds in old age.

“There is such a risk if payments are made from the pension fund, as they will stop when the funds on the depositor's account run out. Another advantage is that a recipient of annuity payments from a LIC does not depend on results of the insurance company’s investment activities; payments will be indexed in any case,” explains Ramai Kurbangaliyev, the Sales and Regional Development Department Director at Nomad Life.

The Agency for Regulation and Development of the Financial Market has high requirements for Kazakhstani insurance companies on financial stability as well as requirements for financial instruments, and this does not allow insurance companies to pursue a highly risky investment policy. "Insurer’s investment activity, in particular, under retirement annuity agreements, unlike the UAPF, is aimed at ensuring the lifetime insurance payments to the client in conditions of uncertainty of such macroeconomic indicators as inflation, GDP, stock market opportunities for decades ahead,” says the Managing Director of Halyk-Life Vitaly Lyubimov.

There are quite significant advantages for transferring savings from the UAPF to an insurance company. First, it excludes the likelihood that the depositor will simply exhaust his savings while receiving a standard pension. “Due to improvement in healthcare quality and overall standard of living in the Republic of Kazakhstan, the likelihood of such a risk is increasing. An insurance company guarantees lifetime insurance payments, regardless of whether the amount of savings transferred from the UAPF has been exhausted or not. Besides, the option of a guaranteed payment period is available, allowing the persons appointed by the client (insured) or his beneficiaries to receive payments that the client (insured) did not receive during his lifetime,” states Gulmira Ubegaliyeva, the Board Chairman of LIC Eurasia.

It should also be noted that when transferring savings from the UAPF, the client begins to receive monthly payments until the retirement age, namely 55 years for men and 52 years for women.

Is it possible to change the insurer?

After transferring savings from the UAPF to LIC, the client can transfer his savings to another insurance company. It is only possible, however, two years after the initial retirement annuity contract is concluded.

The sufficiency amount for getting annuity program and transferring funds from one LIC to another is almost the same for all insurers. The main benefit for the client in case of moving from one company to another is the ability to choose a more reliable insurer, based on the financial performance of insurance organizations. “When transferring funds under retirement annuity program from one insurance company to another, the LIC, from which the funds are transferred, withholds a commission in accordance with the resolution of the National Bank of the Republic of Kazakhstan (the cost of transaction is no more than 1.5% of the insurance premium and 3% of each insurance payment made). It is also important to bear in mind that after switching to another insurance company, the client will be getting new payments without indexation calculated for the same period by the previous insurer. The insurance company to which the client transferred the funds will be indexing again, starting next year after the transfer,” emphasizes Alemzhan Akazhanov, the Board Deputy Chairman of LIC State Annuity Company.

Before concluding an agreement, one should ascertain the reliability of the LIC, which is characterized by several factors: the license by the authorized body, credit ratings by world rating agencies, compliance with regulatory requirements for LIC activities by the authorized body, a major shareholder in the LIC, who is able to support the company in case of financial problems, and reinsurance in the world largest reinsurance companies. “Before concluding a retirement annuity agreement, one should also check the LIC's activities: clients' asset management experience, insurance activity dynamics over the past few years, license by an authorized body, credit rating on financial sustainability, a major shareholder in the LIC able to provide the company with financial support in case of financial complications, reinsurance in a large world reinsurance company and other factors confirming the LIC’s sustainable development,” emphasizes Azamat Yerdessov, the Chairman of the Board of LIC Freedom Finance Life.

Tip

The payments under retirement annuity agreements are available for men aged 55+, women aged 52+ (by 2027 this age will be increased to 55 years).

It is planned to introduce a joint retirement annuity in the nearest future, that is, several family members can conclude one contract. The advantage of such an agreement is that after the death of one of spouses, the other will continue to receive pension payments under the agreement.

Photos are from open sources.

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