Caring for future is a common task

May 07. Kazpravda

By Berik Usenov

Caring for future is a common taskPrime Minister Serik Akhmetov gave an interview to the national newspaper “Kazakhstanskaya Pravda”.

– Last week the Senate was presented a package of amendments for the pension legislation. The proposed novelties, in fact, fundamentally change the pension system in Kazakhstan. What is their essence?

– First of all I will say that the changes discussed today are the logical continuation of the process of improving the pension system. We all remember that our country was the first in the post soviet space to reform the pension system. It was in 1998 and then was introduced the financial defined contribution pension system.

The main objective of the reform was to gradually move from the pension system paid at the expense of the state to the system of citizens’ own savings. Since then the size of pension payments has been repeatedly raised and as statistics shows, citizens’ pension savings generally increased.

Today, the average size of the total pension, which consists of a base and labor contributions is more than 40% (about 42,000 tenge) of the average monthly salary. This level of pension payments corresponds to international standards. Now our next task is to maintain this level, and the goal is to modernize the pension system.

At the first stage of modernization there are three major changes. This is the creation of a Single Savings Pension Fund, the introduction of mandatory occupational pension contributions for persons employed in hazardous and difficult working conditions, the unification of the retirement age, that is, the alignment of the retirement age of women with the retirement age of men.

– As you have mentioned, one of the changes in the pension legislation is related to the creation of a single pension fund. In other words, the assets of private pension funds are transferred under the state control. All citizens’ pension savings will be consolidated in the single fund. What are the reasons for that?

– The saving system at the first stage has fulfilled its role. Today, there are 10 pension funds in the country which as of 1 January 2013 accumulated more than 3.2 trillion tenge of retirement savings of our citizens – it is about $ 20 billion.

Under the current law, the funds are managing the retirement accounts themselves, investing in the retirement savings of citizens. This control scheme generated a number of serious systemic problems.

First, it became obvious that the private pension funds are not able to provide full coverage of the employed population by the financed pension system. Thus, of 8.4 million of the employed people only 5.6 million are the participants of the system and less than 4 million people regularly pay contributions, i.e. only half of our population is involved in the financed defined pension system. And who will take care of the decent old age of the rest half?

Unfortunately, the funds tried to expand the number of their depositors, but at the expense of luring investors from one fund to another. This system has not justified itself. This, of course, benefits the funds, but what is the use from that for the citizens of Kazakhstan and the state as a whole?

Second, the funds have not been able to fulfill their mission of investing pension assets accumulated in their funds in interest instruments. Therefore the return of pension funds was quite low.

Third is the high commission fees and relatively low responsibility for the safety and growth of pension assets. According to experts, the current commission rate reduces the amount of savings of citizens in the long run up to 26%! That is, the funds having a quarter of savings do not take care of their growth.

Under these conditions, creation of the single pension fund was a logical response from the government.

– Some analysts say that among the risks of pension reform there is the creation of the SSPF. How will successful management of pension assets be ensured? And what is the base for investment strategy of the Fund?

– Taking into account the mentioned problems we divided the management functions of the retirement accounts and the pension assets. The SSPF will maintain records of individual retirement accounts and attract pension contributions and pay pensions. And the National Bank will manage the pension assets. At that the investment strategy of the Fund will be determined by the Board of pension assets’ management of SSPF under the President.

Thereby we will increase the State’s responsibility for the safety of pension assets and the provision of investment returns. If these conditions are not fulfilled, we will have to compensate the losses from the budget that in turn will spur the Government to increase the growth of retirement savings.

– What measures are provided by the pension reform to compensate damage to persons who work in difficult and dangerous conditions? And what is the responsibility of the employer in the calculation of pension contributions?

– As known, such basic industries as mining and metallurgic dominate in our economy. The categories of workers employed in these sectors were provided only with voluntary professional pension contributions from employers. But, unfortunately, not many employers take on these costs and pay contributions, as they are voluntary.

Today, the voluntary professional fees are transferred only to four thousand people, while the number of employees working in such conditions is about 350 thousand. That’s why these voluntary professional contributions are transferred to the category of mandatory in the amount of 5% of the payroll.

Thereby 15% of pension contributions will be transferred to the accounts of persons employed in hazardous conditions. These contributions will allow our citizens to save enough money for retirement as early as 50 years already.

I’d like to note that this is not a burden for the employer, as these costs will be charged to the deductions of tax payments. All these measures are taken by the Government to strengthen the social protection of our citizens working in hard, harmful and dangerous working conditions.

– One of the issues widely discussed is the unification of retirement age for women which caused mixed response. Is there similar experience in the world and what are the results?

– The draft law proposes to increase the retirement age for women from 58 to 63 years. Why do we intend to take such a step and to raise the retirement age for women? Under the current legislation the state paid pensions for the employment record “worked up” before 1 January 1998. I.e. if even an employment service was only six-month as of January 1, 1998 , the state pays a joint retirement.

But every year fewer people who have a sufficient work of experience prior to 1998 will retire. And vice versa: the number of those who receive pensions mainly from saving system will increase. And indeed, from 2018 there will be no citizens among pensioners who have a full length of service. This means that the size of joint (labor) pension for women who retire after 2018, will decline.

Thereby the amount of pension savings in the SPF, but not of that, paid from the budget, will play an important role. Therefore, it is necessary to involve in the saving pension system as many citizens as possible to secure sufficient retirement savings. And if we do not carry out this reform today, tomorrow the majority of women will not have sufficient retirement savings.

Public reaction to any unpopular reforms affecting the interests of the general population is always painful. But it is important to understand that no government is taking unpopular reforms without sufficient justification. Unification of retirement age is not the Kazakhstani know-how. Raising the retirement age abroad currently is used or planned to be used in many countries of the world – the UK, Germany, France, Norway, Sweden, South Korea, Czech Republic, Azerbaijan, Ukraine, Estonia, and others.

At that in eighteen EU countries, the retirement age for women will be equalized with the retirement age of men by 2020. Also it’s worth mentioning that in some European countries the retirement age is 67 years, and in some countries the age of 70 years is considered. For example, in France, the period of raising the retirement age for women takes 8 years. But there are also other examples.

Being aware of responsibility to our citizens, we offer not a sharp increase in the retirement age, but a gradual rise for 10 years, i.e. six months for each year beginning from 2014.

– Last week, the Government adopted a comprehensive plan to promote employment of persons older than 50 years. What measures does it provide and how the state will monitor employers? Does the plan provide conditions necessary for a decent retirement?

– Raising the retirement age, we realized the need to take additional measures to provide employment, especially of middle-aged women. A number of changes for the protection of workers over 55 years are introduced of the Labor Code. For example, it is forbidden to post information about job vacancies for employment containing the requirements of discrimination in the workplace. I.e. such expressions as “not older … than” will be considered illegal. Also the termination of employment contracts with the employees under and from 55 (except for the relevant decisions of the commission) is not allowed.

The second: the Government plans to change the special tax regimes in order to cover the self-employed by the pension system. The essence of the changes is that the taxes of entrepreneurs will decrease by the amount of pension contributions transferred for themselves and for their employees.

The third: as known, the Government approved a comprehensive plan to promote employment of older persons, the so-called Initiative 50 +. It contains a number of measures aimed at the use of women’s labor, the use of remote forms of employment, the development of home-based work, as well as business development for women.

Also the Law “On social workplace” that promote the recruitment of persons of pre-retirement age will be developed.

In conclusion I will say that the current modernization of the pension system is mainly aimed at further development of our country. We must provide conditions when any working person can provide himself (herself) with a decent pension, which will allow him or her to live decently. I’d like to add that the success of pension reform depends on the responsibility of the State, the National Bank, the Single saving pension, and the responsibility of citizens for their savings which ensure their decent old age.