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The cost of a secured future

Retirement annuity (RA) is probably one of the most promoted products of Kazakhstani life insurance companies (LICs). However, consumers often complain about the high cost of annuities. In this article we will tell you what is included in the cost of RA, what people buy and what benefits the retirement annuity gives to its owners.
The cost of a secured future

This year, the sufficient amount for concluding a pension annuity for 55-year-old men is 7.3 million tenge, and for women aged 52.5 - 9.7 million tenge. One can also purchase a deferred retirement annuity at age 45. A man needs to have at least 6.6 million tenge to buy it, and a woman - 8.3 million tenge. The payments, however, will start from the age of 55.

When commenting on the cost of retirement annuity, Nurlybek Tolykbayev, Deputy Chairman of the Board of LIC Eurasia, first of all, draws attention to the clear definition of this product: “In lay terms, the client transfers his pension savings to a life insurance company under the retirement annuity agreement, which, in turn, makes lifelong monthly payments with annual indexation, regardless of whether the amount of transferred pension savings has been exhausted or not. This is the first advantage of life insurance companies over the pension fund, which makes payments of the funded part of the pension until the amount of savings is exhausted.” By the way, the payment amount during the first year will be 70% of the subsistence minimum, and after 10 years, thanks to indexation, it will increase by more than 50%.

It means that the cost of the product also includes the date of its survivorship. Thus, the insurer assumes the risk if the funds on the client's account run out. “The minimum cost of retirement annuity is determined in such a way as to provide the insured with monthly payments of at least 70% of the subsistence minimum. The payments are indexed annually by at least 5%. It should be noted that the payments from life insurance company are made before reaching the retirement age by 8 years and are for life,” says Aida Kamysova, the Board Chairman of LIC Nomad Life.

Therefore, the cost justifies itself, especially since these are already accumulated funds in the UAPF. If there are not enough mandatory pension contributions to buy an annuity, you can add your personal savings. “The pension annuity is regulated by legislative acts and the cost is the same in all LICs, so the consumer or the insurer cannot influence the price,” emphasizes Gulzhan Dzhaksymbetova, the Board Chairman of LIC Centras Kommesk Life.

The cost of RA is determined with the consideration of the fact that the amount of the monthly payment under the retirement annuity agreement must cover at least 70% of the subsistence minimum established by the Law “On the Republican Budget” effective on the conclusion date of the pension annuity agreement. The minimum monthly payment as of 2022 is 26,172 tenge per month. Let us remind that the subsistence rate is 37,389 tenge. “The following parameters are also used in the calculation of RA: effective annual interest rate of return in the amount of not more than six percent per annum in the national currency; mortality rates, the insurer's administrative expenses, which are no more than 1.5% of the insurance premium and 3%,” reminds Meirzhan Medeubayev, the Managing Director of LIC Halyk-Life.

Benefits of retirement annuity

After the agreement conclusion, the life insurance company starts paying the client an insurance pension on a monthly basis, which is another advantage over the pension fund, where it is necessary to wait until retirement age. “The main perk of retirement annuity is the possibility of receiving pension payments before retirement, for women the age is 52 years, for men - 55 years. Another important advantage is the lifelong payment option within the framework of retirement annuity, this is the current norm in the current realities, when the average life expectancy is growing. As for heirs, within the framework of the selected “Guaranteed Period”, they will have the opportunity to receive monthly payments under the retirement annuity agreement,” says Aida Kamysova.

Advantages:

  • The possibility of receiving payments earlier than the fixed retirement date;
  • Annual indexation of payments by 5%;
  • Lifetime payments, regardless of whether the amount of transferred insurance savings has been exhausted or not;
  • A guaranteed investment return: unlike a pension fund, a life insurance company will never show negative returns;
  • The guaranteed period option, which in the event of the client’s death provides for guaranteed payments within a certain period to the persons specified in the contract;
  • The payments under the concluded retirement annuity agreements are guaranteed by the Insurance Payments Guarantee Fund.

“Retirement annuity is a reliable insurance product. The security of pension payments under an agreement with LICs is ensured by the Insurance Payments Guarantee Fund. It is worth considering the reliability of the chosen life insurance company, which is characterized by presence of several factors, such as, license by an authorized body, credit rating, reinsurance in the world's largest reinsurance companies and a major participant (shareholder) capable of supporting the company in case of financial difficulties,” concluded Azamat Yerdessov, the Board Chairman of LIC Freedom Life.

Photos are from open sources.

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