LIC Eurasia notes that as of 2021, the demand for a retirement annuity is growing among those Kazakhstanis who previously have not been able to purchase this product. According to the company representatives, there has been a decline in the number of signed retirement annuity agreements as of September 2020. The depositors of the Unified Accumulative Pension Fund (UAPF) with sufficient funds to purchase such an annuity took a break in anticipation of the Law on rehabilitation of economic growth.
“Kazakhstanis planned to use the surplus of their savings in the most efficient way. As of January 2021, the demand for retirement annuity contracts has recovered. Moreover, we see an increasing interest in this product among those who previously have not been able to buy a retirement annuity. This was due to the fact that earlier citizens did not have sufficient savings in the UAPF or could not conclude an annuity agreement, as they did not correspond to a certain age,” said Gulmira Ubegaliyeva, the Chairwoman of LIC Eurasia.
LIC Nomad Life also points to the demand for annuities. “The number of contracts on this product signed in 2020 is almost 2 times higher than in 2017. According to the National Bank of the Republic of Kazakhstan, more than 61 thousand people have entered into retirement annuity agreements worth 283 billion tenge since the introduction of this product. This is mainly due to the advantages that this product has in comparison with payments from the UAPF," said Kairat Chegebayev, the Board Chairman of LIC Nomad Life.
The volume of premiums under such agreements in LIC Freedom Finance Life grew by 69% in 2020. “In 2020, our LIC entered into retirement annuity agreements on amount of 11.06 billion tenge. This is primarily due to the pension system reform, which enables Kazakhstanis to choose the most beneficial, convenient options for receiving pension payments,” said Azamat Yerdessov, the Chairman of the company's Board.
Annuity is more accessible
One of the main advantages of a retirement annuity is that Kazakhstanis can receive payments from the UAPF before reaching retirement age; women at the age of 52, men - 55. For comparison, women retire at the age of 60 now. From 2018 to 2027, the retirement age for women will be gradually increasing from 58 to 63 years.
As of 2021, a deferred annuity has appeared on the market. This product can also be purchased before retirement age.
“The depositors can conclude an agreement with LIC from the age of 45, and receive lifetime monthly insurance payments later: men – from 55 years old, and women as of January 1, 2021 - from 52 years old. The opportunity to conclude a deferred annuity agreement from the age of 40 appears for those who have been paying mandatory professional pension contributions to the UAPF for at least 60 months. As the age for concluding an annuity agreement has dropped, we note a decrease in the average age of our clients under annuity agreements,” said Gulmira Ubegaliyeva, the Chair of the Board of LIC Eurasia.
She underlines that historically, the share of men who purchase a retirement annuity has dominated the portfolio of all LICs. “But in recent months we are pleased to note the increase in the women’s proportion,” the interlocutor notes.
“In 2020, 80% of our retirement annuity contracts were concluded by men. They were mostly concluded by men aged 55-57 years. These agreements make 42% of all retirement annuity contracts concluded in 2020. Among women the maximum share of contracts was concluded at the age of 52-53. If we omit the gender issue, the maximum number of such agreements was concluded at the age of 55-57,” said Zhanar Zhubaniyazova, the Board Chairman of LIC Halyk Life.
Gulmira Ubegaliyeva notes that as of 2021, the sufficiency threshold of savings in the UAPF for the purchase of a retirement annuity has significantly dropped.
If in 2020, to buy such an annuity, 55-year-old men should have had at least 11.3 million tenge in the UAPF, now it is enough for them to have 6.7 million tenge. Last year, 52-year-old women had to have 15.5 million tenge in the UAPF in order to conclude an annuity agreement. As of this year, it is much less - 9 million tenge.
The retirement annuity buyer has the opportunity to receive monthly payments from the LIC for life. “It is one of the main retirement annuity advantages. This option will be valid even when the amount of payments exceeds the amount of savings transferred to the LIC,” the LIC Eurasia specialists informed.
Investments are diversified
LIC Halyk Life reports that the average annual investment return in their company is between 10-11%. “Insurers have high requirements for financial stability and requirements to financial instruments. This does not allow insurers to pursue a highly risky investment policy,” they added in the LIC.
The insurers invest a significant part of their investments in debt instruments of quality and reliable issuers with high credit ratings. “Our LIC mainly invests assets in bonds of the Ministry of Finance, notes of the National Bank and bonds of quasi-state companies. In general, the investment activity of the insurer under retirement annuity agreements is aimed at ensuring life-long insurance payments. The LIC guarantees an annual 5% indexation with the long-term accumulated compound interest,” said Zhanar Zhubaniyazova, the LIC Halyk Life executive.
LIC Freedom Finance Life noted that in order to create an optimal balance between reliability and profitability, the company invests in various assets. “Our insurance portfolio is diversified both by economic sectors and countries. To cover the currency risk on insurance products, we invest in foreign issuers: the USA, Russia, Turkey, Oman, Germany, Great Britain and so on. We mainly invest in government securities of the Republic of Kazakhstan, bonds of national managing holdings, banks, international financial organizations and bonds of quasi-state companies. The return on such securities can range from 9.5% to 13.5%,” said Azamat Yerdessov, the LIC Freedom Finance Life executive.
Income and payments guaranteed
Retirement annuity payments are legally guaranteed. “Starting this year, the annuity payment should not be less than 70% of the subsistence minimum. The minimum wage in Kazakhstan for 2021 is 34,302 tenge; this figure in 2020 was lower - 32,668 tenge. It turns out that regardless of the investment activity, the insurer is obliged to pay a guaranteed payment,” Gulmira Ubegaliyeva informed.
Another retirement annuity advantage is that payments from the LIC are indexed annually by 5%. “This norm is specified in the Kazakhstani legislation. Thus, insurers are already guaranteeing a minimum level of return. Indexation of payments does not depend on the working efficiency of the LIC. The payments will annually growing in any case,” said Kairat Chegebayev, the Board Chairman of LIC Nomad Life.
Funds inheritance
Those who have entered into a retirement annuity contract can also set a guaranteed payment period in the contract, for example, 10, 20 or 30 years maximum. If the depositor passes away, the payments during this period will be made to his heirs. The insured can choose the heirs.
“For example, if the contract specifies a guaranteed period of 15 years, but three years after the retirement annuity agreement conclusion the policyholder is gone, another 12 years will be paid to his heirs or those indicated in the annuity agreement,” explained in LIC Eurasia.
How about a mortgage?
LIC Eurasia reported that the retirement annuity agreement is, first of all, an insurance agreement. The client will be getting the payments under this agreement, regardless of whether the amount of savings transferred in the life insurance companies (LICs) has been exhausted or not.
“Given the growing life expectancy, each LIC assumes the risks of a long life for Kazakhstanis. After all, the payments from the LIC on a retirement annuity are made for life, regardless the amount accumulated in the insurance company. Considering this risk component, the withdrawal of a part of the transferred savings from the LIC to pay off the mortgage, purchase a home, and so on is impossible,” said Gulmira Ubegaliyeva, the Chair of the Board of LIC Eurasia.
Income from multiple sources
The retirement annuity buyers have the option to receive retirement benefits from multiple sources.
“Firstly, upon reaching retirement age, the depositors can receive payments if their work experience was at least six months as of January 1, 1998. Such payments will be carried out in proportion to the length of service. Secondly, the state will provide a basic pension. Thirdly, the depositor will be able to receive payments from the LIC under a retirement annuity agreement. Fourthly, the depositor will receive payments from the UAPF, which were accumulated by the time of retirement after the annuity agreement conclusion,” said Zhanar Zhubaniyazova, the Board Chairman of LIC Halyk Life.
It should be noted that the activities of the LICs are licensed and controlled by the state. “The retirement annuity payments are guaranteed at the expense of the Insurance Payments Guarantee Fund. In the event of liquidation or bankruptcy, the LIC allows ensuring uninterrupted payments on retirement annuities and continuity in fulfilling obligations that are part of the insurance portfolio,” the Agency for Financial Market Regulation and Development reported earlier.
Source: https://kapital.kz/finance/93356/v-chem-plyusy-pensionnogo-annuiteta.html
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