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Kazakhstan discusses merging pension funds
Country wants to merge 11 funds into one
By Alexandra Babkina
2012-06-04
ALMATY – Kazakhstan plans to create a single state pension fund to replace 11 existing funds by August. And while the proposed reform should mean higher returns, it will deprive retirees of choice, market participants said.
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![A Kazakhstani retiree sits outside a pension fund office in Almaty May 26. Reforms being considered could lead to higher returns, but fewer choices, for retirees. [Alexandra Babkina]](/shared/images/2012/06/04/kzpen.jpg)
A Kazakhstani retiree sits outside a pension fund office in Almaty May 26. Reforms being considered could lead to higher returns, but fewer choices, for retirees. [Alexandra Babkina]
KazTAG, the government news agency, which reported the upcoming merger, said a foreign firm that has previously worked with the government would manage the new fund.
Some observers predict a prosperous future for the pension system, but others see no logic in changing things now.
“At the end of the last millennium, Kazakhstan became the first CIS country to introduce a cumulative pension system,” said Daulet Sakhipov, executive chairman of the Ular Umit pension fund. “Unfortunately, this system ... still needs improvement. However, in my opinion, it would make much more sense to improve the existing model ... rather than tear down everything and build from scratch.”
Pension funds not lucrative
Under existing pension law, since January 1, 1998, all workers have had to contribute 10% of income – but can increase that amount – into their choice of 11 pension funds, one public and 10 private.
To date, the assets of the country’s pension funds amount to US $17 billion (2.5 trillion KZT).
The returns vary significantly, according to pensia.kz, the official pension portal. In the first quarter this year, 4 of the 11 funds lost 3.5 billion KZT (US $23.8m) while the others earned more than 6 billion KZT (US $40.8m). However, only the state fund, with a 5.26% yield, beat the inflation rate (4.8%) over 12 months. NPF Astana fell just short, returning 4.78%.
The disparity in performance, though, has little effect on how much a pensioner receives monthly; instead, supporters of reform are stressing the need to use pension contributions to improve the economy as a whole.
“To improve the viability of the pension system, we must improve the market infrastructure, increase its size, help local companies enter the debt market, and in addition, encourage small and medium-sized businesses to raise funds through the Kazakhstan securities market,” Nurlan Rakhimbayev, director the Asyl-Invest think tank, said with respect to increasing the profitability of pension funds.
A major shortcoming is that retirees lack ways of influencing pension funds’ investment policies, he said. Other flaws include low stock market liquidity, a shortage of high-quality financial instruments, and reduced investment in the corporate sector, he said.
“Pension funds should invest in profitable industries, which would enable new companies to open and lead to job creation,” he said. “(The pension funds) really would be working for the economy.”
Pension reform debated
Problems with the pension system have not gone unnoticed. President Nursultan Nazarbayev addressed the need for pension reform in his annual message to the country in February.
Creating a unified pension fund could boost returns, Sergey Plotnikov, a member of the Senate committee on finance and budget issues, said. However, the high returns won’t come unless the government also creates more acceptable legal conditions for pensions, he said. He mentioned control of inflation and requiring broader investment in the non-financial sector as areas that need improvement.
Regulators also will have an easier time overseeing one fund instead of 11, making investments safer, he said. Others aren’t so sure about the wisdom of pension reform.
“The creation of a common fund to be managed by foreigners is not in the national interests of Kazakhstan,” Aydar Alibayev, president of the Association of Pension Funds, said. “Foreign involvement ... is completely unnecessary.”
“Kazakhstan has plenty of experts in this industry,” Rakhimbayev said. “The pension market does not need foreign management, especially if we pay attention to factors like the pension crisis in Europe.”
“It is in the interest of Kazakhstan that the retirement assets work for our economy,” he said, warning that a foreign-managed fund likely would invest the money abroad.
Unified pension fund would eliminate competition
Another concern is that a lack of competition would give the pension fund manager no incentive to outperform.
“The pension market should be competitive,” said Sandugash Iklasbekova, deputy chairwoman of the Grantum Pension Fund. “If all of the pension funds merge into one, then retirees will be left without a choice.”
“Many people are not inclined to believe in the current system ... especially if the returns are not stable,” she said. “What people, especially the elderly, want from the pension system is stability. ... The news of merging pension funds will only generate anxiety.”
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Reader Comments
The single pension fund - but what if one dies before the retirement age (they raised the retirement age on purpose)? Where do all the savings go? To enrich someone?
People, do not give your savings to foreigners. Marchenko should leave!
For how long can people be considered trash? Yes! We are very patient and loyal people, but everything ends one day! For how long can you cash in on us? Everything is sold out? Someone does not have enough money again? What about referendums?
Nazarbaev, a foreigner, or his henchmen; he has not got enough; at the end of his life he wants to rob retirees.
And all those at the feeder do not give a damn about our pensions because they will flee abroad. Kazakhstan does not need them, and all our efforts are in vain. Where are the billions of dollars in contributions to FOMC? It was a STATE FUND! They stole it and escaped? And even trying not to think about it. There were several pension funds to make sure that people have an opportunity to independently choose a stable fund and try different funds several times a year.
Foreign managers will pocket money, and they do not care about the older citizens of another state.
The merger of pension funds is unacceptable.... If all pension funds are merged, then we will get a big mess... No one can guarantee that the above-named unified pension fund will not be in the red! We are to lose competitiveness and money! The more so, we should not allow a foreign company to manage our pension assets... it is unacceptable.
A single SNPF seems more reliable: 1) The state can invest the money in the real economy and manage it. 2) The state will be the only guarantor of deposits and it has money for it. 3) Pension Savings Fund can help develop the stock market in the RK. 4) They intend to hire foreigners to manage it because they do not trust locals (recall FOMS); big joint investment projects may be possible. I think the whole idea is good if they do not mess it up. I retire in 23 years, and my peers and I would not want to stage a revolution with a motto: "The hungry and cheated pensioners."
For how long can they use our money without our knowledge? When they collect taxes, they go public, but when they raise the retirement age and close pension funds, they do it in secret. Plus, they want to transfer it to a foreign bank's control. We have had enough of the American Bank, which gave us the dollar, and now we are all living for dollars.
I am 57 and I do not have the strength to go to work because of diseases. I cannot trust any innovations in the pension system. After gaining independence, the nation has failed to create its own economy. All goods are imported, there is no manufacturing industry, the declared innovation projects have not been implemented, and tell me how can I believe in pension system innovations? They should have let me live the rest of my life peacefully...
The choice, you might think the RIGHT CHOICE, will benefit us. What's the difference for investors if all funds operate at a loss, not even offsetting inflation? It's a shame that we have paid 10% of our hard-earned money to the fund, but not a single fund can tell us where our money is and how we can use it in our best interest. They can say that my savings are guaranteed by the state and in the worst-case scenario the state will return my savings. The question is: If the state guarantees safety of my savings, why do I need other funds? And then where will the state take the insured amount from? Maybe from the taxes that we paid as well? Then, they created funds only to waste our savings and shift the blame to the state?
The minimum pension is small. I have worked in the health sector for 25 years, and then I had to quit to teach my son. I went into private business and I want to say that this pension is just a humiliation of retirees. 27,000 tenge - a minister should try to live on it first and then set the amount. People die, they do not want to live, it is terrible!
What a nonsense from our government! Let it be a state pension fund.
Let there be one fund instead of 11. But the fact that they will be managed by a foreigner is an absurdity... The decision will not be made by the people as usual, but someone will decide(((((
They will merge all into one and do whatever they want!! There will be no one to manage them, and the entire pension system will work however they want it. Someone profits from it so they took the initiative. I'm sure there will be a big scandal surrounding it because no one knows what happens to our deductions. So expect a sequel to the Khropunov-Abliyazov2 soap opera or: HOW I CHEATED KAZAKHSTAN'S PENSION SYSTEM.
The $17 billion haunt someone's mind. Spur your economy, rather than a foreign one. Expand the stock market and ensure higher yields. Do not make people nervous. Let people decide in which fund to put their savings. Let them have a choice.
I think someone seeks to profit from it!
For information: Watch a Hollywood movie about a boss who cheated his employees and took their retirement savings!
Foreigners are not interested in making profits for the Kazakhstanis. Smart and dedicated people should manage the fund. It is necessary to vote for locals. Isn't there a single normal candidate among the 11 funds?
The report made me anxious. Are we going to be ROBBED again? How many more times? Indeed, after the merger the former fund owners will make fortunes on our hard-earned 10% deducted every month.
The one who canceled work experience under harmful working conditions will be held responsible sooner or later before the law for one's degeneration.
The National Bank of Kazakhstan should take all pension funds under its control. In the event of a collapse, inflation, default, etc. the people of Kazakhstan will be able to hold the RK Government accountable...
The financial defined contributions system malfunctions in Kazakhstan because Kazakhstan's economy does not have the real sector. This is the reason 30% of the working-age population is self-employed (or unemployed); they never make any contributions. I think that after 2025 people nearing retirement will stage a revolution because they have no savings and nothing to live on. The so-called basic pension should be an old-age benefit sufficient for a person to live decently, otherwise it will be very bad.
The merger is power, but I am categorically opposed to foreigners' participation in merger management. Also, the merger should result in a single state fund.
Between two evils 'tis not worth choosing. It's just the diversion of money abroad and nothing else. Chile's model does not work; they canceled it while we are bragging about it. They are not controlled by the government and will not be. People no longer have confidence in the government.
Before they decide for everyone else, you must subject the issue to public discussion, conduct a poll like a presidential election because it is my money and the money of other investors. Why aren't people involved in decision-making? I want to see my income and what it is invested into. No other state of the world has such attitude towards people and their investment. Remember the monetary reform? WHERE IS THE MONEY SAVED FOR YEARS? I think that these trillion-dollar savings will end up there as well. WHAT DO YOU WANT? PEOPLE WILL NOT FORGIVE YOU THIS TIME!
Layman’s opinion: It is interesting where these funds take the money for luring investors, and why they report losses despite having a lot of money? Then, why create funds? Let investors keep their savings in banks. Asking foreigners to manage funds is the betrayal of depositors’ interests; you won't be able to find a scapegoat later on.
They are cheating us again. There are lots of areas in the economy to boost the country's economy. The habit of squandering will not lead to anything good. For 20 years of independence, Kazakhstan’s pension system has been well organized. I do not think any reform is needed.
A reform of NPF is needed anyway. Bureaucrats are always reluctant to change the PF system.
Let the money work. I want to buy a few shares of profitable companies to receive dividends for life and leave an inheritance to my children. It is not clear if they transfer it wherever they want, without asking. For example, from the "Republic" to "Astana", and managers get a decent salary.
There is no intelligible information about the new television digital standard DVB T2 for Kazakhstan. It seems that there is a conspiracy involving TV set traders - as they sell anything.
The Pension Fund should be public. It will give at least some hope that funds will be invested in profitable enterprises, rather than in relatives and friends. A hope for stability.
I think it is right. Every fund has a huge staff, and managers do not care about money because contributions were trickling in regularly. They got bonuses and transferred funds from one fund to another. They withdrew our money according to the rules they established. Insurance companies are doing the same, they make deals and levy bonuses from all insurance premiums. People, it is time to read laws; there is no market; defend yourselves, demand transparent accounting. Bonuses and bribes. Everything will collapse; good-bye insurance payments. You have to take the matter to court because they did not want to fulfill their obligations. Emergency commissioners are cheating, like it is better, isn’t it? I won the case in court and got my payments back, but they reduced damages; and appraisers get their income from insurance companies.
MERGER OF ALL FUNDS WILL YIELD BIG RESULTS TO ORDINARY PEOPLE. THERE WILL BE LESS SCHEMING. YIELDS HAVE ALWAYS BEEN SMALL FOR INVESTORS SO THEY WILL REMAIN. STATE CAN ENSURE PENSIONS SAFETY BUT THESE SAVINGS WILL NOT BE ENOUGH TO PROVIDE FOR RETIREES.
I am 61 and I surely want to get my money from the pension fund. Yes, it makes me anxious. What if my savings are suddenly lost somewhere? My honestly earned savings! Having worked for many years away from my family and relatives, I am against the merger of pension funds, and I am sure that all older people will support me.
The accumulation of a huge amount of money in one fund, even if a state one, would again lead to embezzlement of our money. Lobbying for it are the same people who are looking for new ways to get rich quickly.
It is good there will be no fuss like "What fund to choose?" I hope the number of bureaucrats will decrease. Foreigners should not be allowed to manage it if they are not more honest than our officials.
Close all pension funds; the more investors - the more staff and parasites. Close and remove them, let them make money in the manufacturing sector. SNPF must be the only one.
A single pension fund is ok, but without foreigners.
How can they let foreigners manage a pension fund in Kazakhstan? This is absurdity!
Pension funds cannot be given into the hands of foreigners. Are we unable to manage our savings and need an uncle, who will take everything and rip us off?
The very idea of pension funds was flawed.
A PENSION FUND MERGER IS A NORMAL PHENOMENON: FEWER CLERKS - LESS EXPENSES FROM PENSION FUNDS - MORE SAVINGS. BUT SUCH AMOUNTS SHOULD NOT BE LEFT AT THE MERCY OF FOREIGN CAPITAL!