According to experts, employer’s mandatory pension contributions (MPC) under the notional defined contribution model cannot compensate for the reduction or absence of PAYG pension.
In order to ensure the adequacy of savings and lifetime payments of funded pensions, experts propose the following:
- replace the notional option (in fact, distribution) of introducing MPC with a clear and fairer (for employees and employers) mixed option (the “4+1” model);
- 4% of MPC should be directed to individual pension accounts of employees (with the right of ownership of such savings and the right to inherit them);
- 1% of MPC should be directed to the general account for guaranteeing the lifetime payments of funded pensions.
Assuring of lifetime payments of funded pensions (annuitization) will provide conscientious employees with a total pension throughout their old age and not lower than the minimum social standard.
Let us remind that the introduction of MPC was carried out in order to increase the level of pension provision in Kazakhstan, including the principles of sharing of responsibility between the state, employee and employer.
It should be noted that all the proposals made are aimed at strengthening all components of pension provision; they are interconnected and should be considered as a whole. Therefore, we will continue to clarify on the remaining areas of the experts' proposals.
Photo courtesy of public sources
