“The creation of a Unified Accumulation Pension Fund based on the State Pension Accumulation Fund (SPAF) is quite feasible given its technical framing, experience and the professionalism of specialists,” said Aitkul Samakova, member of the Mazhilis of the Parliament and chairperson of the Social Council in the parliamentary group of the Nur Otan National Democratic Party after a visit by a group of members of the parliament to the central office of the fund.
Explaining the findings, she noted the practical experience of the SPAF, functioning since 1998, which is the largest in the domestic savings system. The fund is the starting point of pension reform in Kazakhstan. It took the first pension contribution in the history of Kazakhstan’s National Pension System and it was first among the national pension funds to get the right to independently manage pension assets. Another argument by the member of parliament is the fund’s position under the current system: the SPAF has kept steadily in the top three both in the number of retirement accounts and volume of savings throughout its history. On Jan. 1, 2013, the number of individual pension accounts of contributors and recipients of the SPAF was 1,999,989, or 23.6 percent of Individual Pension Account (IPA) in the total pension system and retirement savings in the fund amounted to 624,638,336,000 tenge, 19.6 percent of the total savings in the system.
When private funds emerged on the market, investors were enticed by commissions and gifts, but the population hesitated to leave the SPAF. Many contributors explained their devotion to the fund, with its very conservative investment policy and moderate investment income.
Few people remember that when the State Pension Accumulation Fund was created, there was no issue of such a high income within the fund. Then, the best indicator of the investment income of 3 percent was known. The strategic goal for the Pension Accumulation Fund was formulated to be reliable, stable and adequate to the future pension size of real workers. But because of speculation, sustainability is sometimes sacrificed in favour of return.
To tell the truth, I, like any investor of the accumulation fund would like to see revenues of 25-30 percent, which were experienced by other Accumulation Pension Funds in the early years of the system. But experts return dreamers to earth. Such an income in the first years was a logical result of objective processes, i.e. the main macroeconomic indicators were fixed within these limits. But as the situation in the economy, its indicators – both positive and negative – change, the growth rate of income also changes.
The creation of a Unified Accumulation Pension Fund (UAPF) based on SPAF is a logical step. Such long-term social projects require maximum governmental guarantees, sustained fund positions, real, objective income, adequate market situations without roller-coaster conditions created by speculation, as well as mass participation of the people in the system that private funds are not able to provide. Hundreds of thousands of farmers, traders in the markets and individual entrepreneurs are outside the system.
So, return of the accumulation system to the state can be regarded as a preventive measure against continuous talks of a possible crisis, and as a kind of time out for the government, financial regulators and legislators, which will allow for establishing less risky rules of the game and mechanisms providing clear guidelines for the functioning of the system, including the principle of one hundred percent involvement of the accumulation system of the entire working population of the country.
Supporters of this move believe the creation of the Unified Accumulation Pension Fund (UAPF) will allow for improvement of the safety of pension assets. A considerable amount of national savings for old age – nearly 3.39 trillion tenge – are at stake.
And this is not only a financial indicator, but also a social issue. When creating the UAPF, a cross-guarantee of safety of pension savings arose: the state – on the issue of security of assets and accrued investment income not below the level of inflation, the Government – as the owner of the Fund, the National Bank – as an asset manager and custodian bank. This measure also allows for avoiding the danger of speculation that has been observed over the 15-year experience of the Accumulation Pension System, even with stringent regulatory limits on the investment portfolio.
“We have every reason to call our pension system one of the most socially oriented in the world. Precisely, because of the adoption of the Chilean model, our state initially started to think of the system of guarantees of pension savings. Kazakhstan is practically one of the states that has taken full responsibility and gave guarantees to pension savings, accumulation of investment income at a level no lower than the amount accumulated over the entire period of inflation and for their complete payment of retirement benefits. Therefore, UAPF will continue the policy still ongoing by the SPAF Fund. The approach is weighted, the portfolio is moderate and the fund is stable and sustainable in the long term,” said Dolores Medeusheyeva, Chairperson of the Board of JSC Accumulation Pension Fund SPAF.
“The management of the pension fund assets will be carried out by the National Bank of Kazakhstan in accordance with the approved investment declaration. In addition, the Council on management of SPAF pension assets (advisory body), one of whose functions is is to develop proposals on a list of permitted instruments for investing pension assets, will also participate in the management of the pension SPAF assets. Members of the Board will be approved the Head of State,” said Dolores Medeusheyeva.
Now that the idea of uniting funds into the UAPF has become accepted and emotions surrounding the issue have settled, the issues are more of a pragmatic, technical nature, It is clear that 2 million accounts now available in the SPAF is only less than a quarter of 8.5 million individual pension accounts of the future UAPF. For their verification, transfer, processing, use of appropriate to scale hardware and software, competent staff, sub-offices and modern means of communication with customers across the country are necessary.
This issue also interested deputies who visited the fund. As Samakova noted, existing technical equipment of the fund for the conduct of IRS depositors meets all the requirements for automated information systems, the most important of which are the reliability and availability of appropriate levels of protection. Now, say the fund experts, the fund has completed work on the improvement of software that allows it to keep records of all accounts owned by the pension system.
“In 2010, long before the decision on the establishment of UAPF, the Fund adopted a strategy for the development of an information system, transfer to another programme, and for the last two years we have been preparing for this,” says Managing Director of UAPF Ruslan Erdenayev. “We have moved to a new technical equipment, regardless of whether it would be UAPF or not. The new system is more powerful in terms of stored information on speed, it is more secure. It is necessary to take into account that UAPF was the Fund by default and actually handles the entire base of investors in Kazakhstan at a level not less than the current 8.5 million IRS. That means, even in our current system, almost all depositors of the country at least once visited the UAPF. And the system will be further developed, taking into account services to which investors have become accustomed in their funds. I mean a modern mobile and interactive form of communication with clients: view bills, receive account statements, information, use of a private office everything over the Internet or mobile phone. But we want to add and extend the function to upgrade the system in this part. It is planned to introduce additional services, such as obtaining information through ATMs of partner banks. Let me remind you that the UAPF was never affiliated with any of the second-tier banks. Moreover, given the official status of the UAPF, we plan to take advantage of these opportunities to the centres of servicing the customers (CSCs) and the e-gov portal. Negotiations are already underway.”
Now the development of the branch network is taking place and staffing issues have been resolved. As explained by Managing Director Talap Kabdenov, in regions 152 service points are already operating: branches, operating rooms, service centers. Another 91 points will be opened by the end of the year. There are also plans for development for the year 2014. The Fund plans to reach regional centers, where earlier it was not represented before.
There is already a vision of how the procedure of association will be conducted. The first stage – the reconciliation of accounts of depositors held by the funds to maintain has been completed. The second stage, the opening within UAPF accounts for future investors. The third step, work with accounts that are inaccurate or outdated. Meanwhile, work will take place to prepare for the transfer of the funds’ investment portfolios. The fourth stage is the transfer of pension assets and accounts owned by each fund on schedule in one business day.
“Only in this way will the interests of all parties to the merger be respected … (and the) continuity of the accounting system be maintained,” said Medeusheyeva.
“As for the staff, already in the current year only in the branch network about 2,000 people will operate. The Fund plans to hire professionals from other funds on a competitive basis,” she said. As for the current staff, Medeusheyeva noted that the experience and expertise of many workers of UAPF is very high, and about 5 percent of professionals has been working in the fund for 15 years. Most of the staff of other funds in different times gained experience working in the UNPF. “It just happened historically that we have been a source of manpower for the entire system,” she added.
“Our meeting demonstrated that great professionals work for the Fund,” Samakova said. “Many of the professionals have experience in the financial sectors of the economy, including the pension system. From them we get qualified answers to all our questions. I must say that citizens of Kazakhstan also are very active. The daily number of calls in the Fund call-center ranges of 80-100 per day.”
“But there is no rush. People are calm, they are mainly interested in issues of retirement to sign the contract, the methods of obtaining statements, transfer of pension savings, addresses and phone numbers of our offices,” Ayman Tagayeva, the call-center specialist said. “On all these questions our operators give comprehensive answers. When asked questions related to current accounts of depositors, we connect them with Fund experts. A call to our call-center via the single number 8-800-080-1177 is free from any point in Kazakhstan.”
The author is the economics columnist for the Kazakhstanskaya Pravda newspaper.