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Retirement annuities just got more attractive

The Agency of the Republic of Kazakhstan for regulation and development of the financial market (ARDFM) has made a decision aimed at increasing the benefits of retirement annuity. In accordance with this decision, the minimum rate of indexation of insurance payments will increase from 5% to 7%, and the maximum rate of return - from 6% to 9%. The details of this solution are below.
Retirement annuities just got more attractive

The retirement annuity market has been on the rise in recent years, which is primarily due to system reforms as of 2021, when the thresholds for the amount of savings and the age for concluding annuities have been lowered. There was a certain correction in 2022, but, nevertheless, the indices were quite high. “The rate of premium collection this year shows that annuity programs are gaining even more popularity among our citizens,” states Galym Amerkhodzhayev, Chairman of the Board of LIC Standard Life.

Age and sufficiency threshold

As part of the new changes, insurance organizations were also given the opportunity to use a separate mortality table for people with disabilities and/or working in harmful and dangerous working conditions.

The cost of pure life retirement annuity for men aged 55 has decreased from 8 million tenge to:

o 5.8 million tenge for persons working in harmful and dangerous working conditions;

o 4.7 million tenge for III disability group;

o 3.6 million tenge for II disability group;

o 2.4 million tenge for I disability group.

“Retirement annuity has become more accessible to people with disabilities and working in hazardous working conditions. According to our calculations, the changes made are clearly in favor of the clients,” noted Meirzhan Medeubayev, Deputy Chairman of the Board of LIC Halyk-Life.

Return on investment

Thresholds, rates of return and indexation, tariffs and reserves are calculated by actuaries, qualified specialists in financial mathematics, of which there are a little more than 60 people in all of Kazakhstan. At least one actuary works in each insurance company and in the Agency of the Republic of Kazakhstan for regulation and development of financial market. Before setting thresholds and rates, the state financial regulator made all the necessary calculations, assessed the change effectiveness, attractiveness and benefits of the product for citizens, and the profitability for insurance companies.

“The draft amendments provide for an increase in the minimum indexation rate and maximum rate of return by 2% and 3% respectively. Besides, it is planned to use a separate mortality table for people with disabilities and those working in harmful and dangerous working conditions,” explains Azamat Yerdessov, Chairman of the Board of LIC Freedom Life.

After the changes come into force, citizens will be able to choose a life insurance company with the most favorable conditions for concluding a retirement annuity. “We plan to raise the rate to 8%. As soon as the amendments were put into effect, the company recalculated the cost of the annuity in accordance with the law. Changes in parameter calculation of insurance premium increase the company's liabilities. However, this change is balanced with decrease in the threshold for a certain category of depositors, which will attract new clients from the UAPF and may have a positive impact on an increase in premiums for this class of insurance," said Gulzhan Dzhaksymbetova, Chairman of the Board of LIC Centras Kommesk Life.

Today, all companies operating in the market also calculated their capabilities and decided to work within the limits indicated by the ARDFM resolution. “Increasing the rate of return and indexation will build up the amount of monthly payments and will affect the dynamics. This means that if earlier a client has been gradually receiving all the savings transferred from the UAPF to insurance organization for 15-16 years, now he will be able to choose the entire transferred amount for 11-12 years and continue to receive payments for life,” considers Galym Amerkhodzhayev.

It is still difficult to state with confidence how the changes affect the income of life insurance companies, but higher rates, especially against the backdrop of higher inflation and a slowdown in the global economy, should make the product more attractive for Kazakhstanis.

Photos are from open sources.

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