Government Seeks Additional Pension Fund Reform

ASTANA – “The pension reform proposed by the Government of the Republic of Kazakhstan is aimed at ensuring worthy lives for the people of Kazakhstan in old age,” Kazakhstan Prime Minister Serik Akhmetov said recently.

“Today’s reforms for modernizing the pension system are, of course, aimed at the development of our country,” Akhmetov said during a recent national television interview. Responding to critics of the reforms, Akhmetov said, “A human being by nature is cautious to changes and does not accept everything at once. Today, the average indicator of a pension, which consists of the basic labour and accumulative components, is a little above 40 percent of the average salary. This is approximately 40,000-42,000 tenge ($265-$278). This level of pension payments corresponds to international standards.”

The further task of the government is to maintain this level, which is the main objective of the modernization of the pension system.

“Fifteen percent of pension contributions will be transferred to the pension accounts of those employed in hazardous labour conditions. According to calculations, those allowances will help our citizens accumulate enough means to retire at the age of 50,” Akhmetov added.

The prime minister specified that only voluntary professional pension contributions on the part of the employer were provided in the existing system for the category of employees in the mentioned sphere.

Unifying the pension age is something many countries are doing. “Realizing our responsibility in this issue, we proposed not a one-time, harsh adjustment of the pension age, but its gradual increase during ten years, adding half a year for each year starting from 2014,” Akhmetov said.

It was earlier noted that the current rates of commission fees, charged by private pension funds, reduce the volume of citizens’ savings by 26 percent. “According to experts’ calculations, the current rates of commission remunerations reduce the volume of savings, i.e. the funds reserve a quarter of savings, neglecting their growth,” the head of the Kazakhstan government stated.

He noted that nowadays 10 accumulating pension funds operate in Kazakhstan, totally managing more than 3.2 trillion tenge ($21.2 billion) of pension savings of the population of Kazakhstan. According to legislation, these companies regulate pension accounts themselves and independently decide on investing their pension savings.

“Such a control scheme has generated a number of serious systemic problems… It became obvious that private pension funds were not able to provide full coverage of the employed population of the funded pension system,” the prime minister said.

According to the prime minister, only 5.6 million out of 8.4 million of the employed population are participants of the system, and the contributions of less than four million people are regularly transferred, which is less than a half of the total employed population.

“Unfortunately, the funds were trying to expand the number of the depositors on account of people not covered by the pension system, but they were drawing over the existing investors. This, of course, is beneficial for the funds, but not for citizens of Kazakhstan and the state as a whole,” Akhmetov said. He believes that the funds have not been able to “effectively use the retirement savings, which have led to low returns.”

“In these circumstances, the establishment of the Single Pension Fund was a logical response from the government,” Akhmetov said in the television interview.

Adoption of a law that unifies the retirement age for the women of Kazakhstan may be delayed though.

The controversial draft law has also been discussed by members of the upper chamber of the Parliament. Senators have criticized some provisions and offered to postpone the adoption of the law for about three years and cover the “gaps” of the budget by higher export oil duties.

As was earlier reported, on April 24, the Mazhilis of the Parliament of Kazakhstan in a second reading approved the draft law “On Pension Provisions in the Republic of Kazakhstan,” and a package of related amendments.

The document provides for the unification of the retirement age for women. It also provides for the establishment of the Single Accumulative Pension Fund (SAPF) based on the state accumulative pension fund called GNPF.

As is known, Halyk’s pension fund accounted for 33.3 percent of all pension fund assets in Kazakhstan, officially estimated at almost 3 trillion tenge ($19.9 billion) as of Jan. 1, 2013. BTA’s Ular-Umit fund held 12.6 percent of all Kazakh pension fund assets, and Grantum 9.6 percent. The state-owned GNPF pension fund had 19.6 percent. So, creation of a single pension would mean higher returns.

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