The accumulative pension system in Kazakhstan has been introduced since 1998. Its base is individual pension accounts (IPA) of contributors, to which mandatory contributions are transferred by employers of contributors. Compulsory contributions are invested in stocks and bonds to generate income – “the money must work”.
The pension contributions transferred by the employer on behalf of the contributor through the state corporation go to the UAPF. Also, the state corporation calculates the state guarantee and informs the UAPF about the receipt of contributions.
The UAPF was established in 2013 on the basis of JSC NPF SNPF. The founder and shareholder of the UAPF is the government of Kazakhstan, represented by the State Property and Privatization Committee of the Ministry of Finance of the Republic of Kazakhstan.
Pension assets are recorded, return on investment is accrued to the individual pension accounts of contributors (IPA), contributors are informed about the status of their accounts, and pension payments are made in the UAPF.
UAPF only counts money. The National Bank of Kazakhstan or a custodian bank and companies managing the investment portfolio manage the money of future retirees or pension assets. Since 2016, the National Fund Management Council has been developing proposals on the effectiveness of asset management.
The Kazakhstani pension system consists of two main levels today; PAYG pension system is on the first one. This is the level of pension payments from the state budget, at which pensioners receive basic pensions.
The second level of the Kazakhstani pension system is the mandatory defined contribution pension system (DCPS), where pensioners first accumulate their future pensions and then receive them through the Unified Accumulative Pension Fund (UAPF).
The amount of voluntary contributions to the UAPF is 5 thousand times less than the mandatory contributions.
There is also a level of accumulation in retirement and payments from voluntary contributions. The depositor transfers voluntary contributions through a second-tier bank (STB); they go to the National Bank, which informs the UAPF about the contributions received, payments, financial instruments and investment return.
However, the share of voluntary contributions to the UAPF is very small. So, as of June 1, 2022, pension savings on mandatory pension contributions amounted to 12.77 trillion tenge, and on voluntary pension contributions - 2.57 billion tenge, almost 5 thousand times less.
PAYG pensions for retirees are paid by taxpayers
The amount of basic and PAYG pensions is determined and guaranteed by the state. Taxpayers officially pay pensions to retirees. The growth of payments of this part of the pension depends entirely on the growth of tax collection and other state budget revenues, and the state budget is highly dependent on petrodollars from the National Fund of Kazakhstan. Therefore, the payment of pensions dooms the state budget to serious losses during periods of low oil prices.
In the defined contribution system, the size of pension is determined only by the amount accumulated in the account of a Kazakhstani retiring and the investment income on pension assets. The role of the funded component is growing from year to year.
Savings in the UAPF are completely the property of a professional who then becomes a pensioner. No wonder, in the event of death of a Kazakhstani, his savings are inherited by law.
The main limitation on the use of one's contribution to the UAPF is that the depositor receives his savings only in the form of monthly pension payments. However, this limitation is now limited. The savings in the UAPF can, under certain conditions, be used by the contributor to improve housing conditions and medical treatment.
In the defined contribution pension system of Kazakhstan, the state guarantees only that investment return on pension deposits in the UAPF will not be less than the accumulated inflation. The pension savings of depositors transferred to trust management by investment portfolio managers do not, however, fall under the state guarantee, as the investment managers provide a guarantee to ensure the minimum return on pension assets.
PAYG pension, as is done in some states, minimally protects a citizen from poverty at retirement age if, for some reason, he has been unable to make regular contributions to the funded pension system or these contributions have been too small.
Thus, Kazakhstani pension contributions to the UAPF from the beginning of the year to June 30, 2022, according to the National Bank, amounted to 811.9 billion tenge, and early withdrawals amounted to 830 billion tenge. Thus, the average monthly contribution of 1 future retiree is approximately 15 thousand tenge, and the average savings of 1 future pensioner over 40 years will be about 7 million tenge. Besides, the smaller the amount of money invested, the lower the investment return.
Source: https://prodengi.kz/post/kak-ustroena-pensionnaya-sistema-kazaxstana
Photos are from open sources.
