- What were the factors that made Kazakhstan the first among the CIS countries to reform the pension system?
- The pension system reform was necessary, as the solidary system went bankrupt. Many people forgot, but in 1997, delays in the pension payments were up to six months, and the total debt on pension payments was equivalent to about $0.5 billion. It was a huge amount for our country. Let us not forget, that the pension reform took place in two stages. The parliament came to the decision of retirement-age increase in 1996, and in parallel the decision on creation of voluntary accumulative pension funds was accepted. At that time I worked as deputy chairman of the National Bank, being responsible for supervision, and we were instructed to carry out the reform. We were studying the pension systems from all sides for half a year and came to the conclusion that voluntary funds would not solve the problem of future pensioners. Back then, several countries were thinking about pension reforms: Kazakhstan, Kyrgyzstan, Russia and Ukraine. Kyrgyzstan created one voluntary pension fund. And now 21 years later, it has become quite clear that it has not solved any problem. I then prepared a note addressed to the president, handed it over to the Chairman of the National Bank, Oraz Zhandosov. He corrected it and handed it over to the head of state. Then I went to explain the details, after which the president instructed the government. This was in November-December, 1996. After that we came to the parliament with the draft law. There was a lot of discussion on this topic in the Mazhilis.
The pension reform is a common merit. The main thing is that we had the political will, plus the president and government support. By the way, then the prime minister made representatives of all ministries and the National Bank to sign the document. There were about twenty people. He then said: if in 20 years someone asks about the reform, the names will be known. More than 20 years have passed. We did everything right.
- The group of developers that you headed chose the Chilean model. Why?
- We always need to simplify everything. We have studied different models: Singaporean, Swiss, have cooperated with the World Bank. At that time it was believed that the best model was a combination of Singaporean, Chilean and Swiss systems. From the very beginning it was decided that there would be the accumulative system, but the solidary system would remain with all its obligations. And people are still receiving payments. Solidarity and accumulation systems are two legs, this is a more stable model. The accumulative system is based on capital markets. A person puts money into his account, money is invested. If we are talking about a long system (40-50 years old - Kъ), a person should understand how much he will receive, and that this depends on the profitability of the PF. The solidary system depends on the service record and the labor market. The capital market and the labor market have a low level of correlation. In some years the situation is better in one market and worse on the other, and vice versa. When a person has a link to both the labor and the capital markets, he gets more money. The system is called the Chilean, but there are a number of parameters on which we very strongly differ. For example, we have always had a single center for payment of pensions, and in Chile each pension fund does it independently. These are very large expenses, which ultimately fall on the depositors. In the first year of operation, Chile's pension funds showed a yield of minus 8%, because they transferred all their expenses to people. We believe that we have an improved Chilean model.
- Did pension funds help the KASE development?
- Yes and no. There was a definite push boost, but not as strong as we wanted it to be. The first idea, which was approved by the president in 1996, implied the linkage of three processes, such as: Accumulative Pension Fund (APF) structuring (money comes here); privatization (our state companies would become joint stock companies and place part of their shares on stock exchange), and the third aspect, our companies by attracting funds from pension funds (institutional investors) would develop. Unfortunately, we had a conflict with the government then (because of which I went to the private sector), because a number of companies that had been on the privatization list were withdrawn from it. We did a lot of work, hired Western investment banks, but the government banned it. For example, in 1997 Kazakhtelecom was sold at a price higher than it is now. There was a boost, but if everything moved according to the original scheme, we would have another securities market now.
- What was the worst year for the Kazakhstan pension system?
- 1998 was the hardest year, it was a crisis and James Giffen was in the country. He brought two specialists from Harvard, who said that the entire pension reform should be abolished. They were supported by a part of the government. I did not work in the government then, but I was specifically summoned to Astana, and conducted explanatory work with those people. We won. You see, a long-term system had been created, and the crisis began one year after its implementation. Immediately there were critics who said there was no point in it and the solidary system was better. But this is not true. In no country in the world, a solidary system can cope with payments to pensioners. In Germany, a third of pensions are paid by means of gasoline excise duties. If they paid pensions only out of contributions, they would receive pensions by one third less. In Switzerland (that is why they made a saving part of the system in the 90s), the solidary system was to go bankrupt in 2013. All countries have a date when a solidary system should go bankrupt. These calculations the World Bank made back in the 90s.
- What did they rely on?
- The pension system differs from any other financial system in that it is necessary to carry out calculations for 40-50 years.
The first factor is a life expectancy increase in all countries. In the beginning of the XIX century this index was 38 years on average, now it is 72 years. When Bismarck introduced the pension system in Germany, the average duration was 35 years for men and 38 years for women. And retirement in Germany was then at the age of 65. Everybody realized that only few would live up to that age.
The second important factor is decline in the birth rate. In the 30s there were 7 employees per pensioner (and this is very good), and now there are 2 working people per pensioner. In the future, approximately in 2050, there will already be 1.5 working people for one pensioner. And later the ratio will be 1 to 1. What then?!
For example, our women work in average for 23 years and are retired for 25 years. The solidary system cannot cope in this case, so we need the saving system. Therefore, for the majority of population, the saving system should become the main one.
In my opinion, there must be a saving and solidary systems, but the base quantity of pensions should be paid out of the saving system.
- When they talked about the difficult period, you did not mention years 2012-2013. You then headed the National Bank and were against the pool scheme...
- I do not understand why it was necessary to unite. It was a project which the National Bank always opposed. Now we see that it is better when there is competition in the market. The initial model we created was the most correct one, and the merger of pension funds in the SAPF is wrong.
But the most important conclusion is that overall everything was done correctly. Secondly, we did everything before everyone else and, probably, the best among all CIS countries. Third, all the current discussions in Russia, Ukraine and Belarus confirm that we were right. And those people who have angrily criticized us are now silent. The cost of delay of reform integration is tens and tens of billions of dollars. If we had an old system, the level of pensions in our country would be much lower, and the funded part would not exist. How much money was paid to people during the existence of the pension fund? These are trillions of Tenge. It should be clearly understood that no one would pay this money in the solidary system.
Kyrgyzstan is a brilliant example of what would have happened to us if we had not changed the system. They created one voluntary pension fund. Our average pension is 3.5 times more than in Kyrgyzstan, in dollar equivalent.
- Russia and Belarus are going to reform their pension systems. How do you assess their planned reforms?
- It is amusing to observe the current discussion in Russia and Belarus, because this is our discussion of the 96-97-ies. They started doing it 20 years later.
Nobody says about this: the money that is stored on our pension accounts is our money, and in Russia it is the property of the Pension Fund. If the fund goes bankrupt, only the money that is "pulled out" by the liquidation commission will be returned. This is wrong, and we have told them that.
Then, they propose to increase the retirement age to 65 years for men, which I think is wrong. If we are talking about the Common Economic Space, then we must sit down and agree on a single pension system for Kazakhstan, Russia, Belarus and other EEA countries. Now it turns out that Belarus, 20 years later, introduces the retirement age 63-58, Russia is going to do 65-63, and we are aligning 63-63. We must sit down and negotiate.
- Did you retire early?
- I have always worked in financial sector or civil service. They are honest employers and paid 10% of their wages on schedule. Therefore, I registered my pension earlier. We can retire early, if by actuarial calculations we have accumulated enough money on our account. When I turned 55, I registered a pension. And now I am a pensioner, a voluntary pensioner, I do not work anywhere, and it suits me. When people are not happy with the term of retirement, it is worth recalling that no one prevents a person from saving more and retiring before the date. Besides, the age of early retirement for men is 55 years, and even 50 for women. But the opportunity of additional voluntary contributions is used by a small number of people, only 30-40 thousand in the country. I used it, so I saved more.
10% are the compulsory contribution another 5% are the voluntary contribution. If a person is employed in physically hard production, an additional 5% is paid by the employer. Then it turns out that 20% go to the pension fund. The most important thing in a saving system is the power of a compound interest. Einstein wrote about this when interest is accrued on interest. If deductions are exempt from income tax and are invested in tools that generate revenue, and this income is invested again, then the person in the end (in 40 years) gets quite a lot of money in his account.
Those people who believe in the pension system, they deduct and are satisfied. I have dozens of acquaintances who have issued a pension at 55, and now all are retired volunteers. None of them complains about life. And there are people who repeat the mantra: "The state cannot be trusted! They deceive us. "They do not deduct money. Who deceives whom?! When they retire, they will have a solidary pension and the few funds that have accumulated.
Source: https://www.kursiv.kz/news/finansy/grigorij-marcenko-o-pensionnoj-sisteme-my-vse-sdelali-pravilno/
Photos: kapital.kz
