President of Kazakhstan has signed amendments to the pension legislation, Tengrinewsreports citing the official website of the President.
The press-service of the Ministry of Health and Social Development explained the major changes. Pension payments after the changes will consist of the following:
1) basic pension payments, assigned depending on the length of participation in the pension system (the total number of years a certain individual holds an official job);
2) pension payments from Pension Center to persons who held an official job for 6 months or more before January 1, 1998 (before the 10% deductions were introduced in Kazakhstan);
3) pension payments from the Single Pensions Fund consisting of:
- 10% individual compulsory pension contributions of the employee (10% of the persons salary transfered to his/her pension fund account as a compulsory payment since 1998);
- Additional 5% compulsory pension contributions by the employer (starting from 2017);
- 5% compulsory occupational pension contributions (for those holding dangerous jobs or working in hazardous conditions, to be introduced in 2023);
4) voluntary retirement savings.
The law provides for changes in the procedure of assigning basic pension payments. Starting July 1, 2017 the basic pension will be assigned depending on the length of participation in the pension system, only after the person reaches the retirement age -- 58-63 for women (a gradual increase of pension age for women is underway), 63 for men.
The length of participation will include both the years in the solidarity pension system (before January 1, 1998) and those in the mandatory pension contributions system (after January 1, 1998.).
For a person who held an official job for less than 10 years or never held it at all, the amount of the basic pension will equal to 50% of the minimum subsistence wage (MSW). For each year worked after 10 years, the basic pension will be increased by 2%: those who held an official job for 20 years will get the basic pension of 70% of the MSW, 30 years - 90% of the MSW, 35 years or more - 100% of the MSW. For the reference, currently the MSW makes 21,364 tenge ($114). It grows a little every year.
Introduction of additional compulsory 5% pension contributions - additional payment in the amount of 5% of a person's salary deduced at the expense of his/her employer to the pensions system every month starting from 2017 - will constitute the new notional pension component. These savings will not be considered property of the employees, but will be fixed to the provisional pension account of each employee in the Single Pension Fund. To be eligible for pension payments from the pool a person must be part of the additional 5% compulsory contributions system for at least 5 years and reach the retirement age. Disabled persons of groups I and II will also be eligible. This component will be paid for life in monthly payments and will not be inherited unlike the part of the pension accumulated through 10% contributions.
According to the authorities, the 5% contributions pool will be adjusted to the inflation and other changes every year according to the financial capacity of the Single Pension Fund and the country's demography.
According to the Ministry of Heartfelt and Social Development, the propose package of measures will ensure the replacement rate at the level recommended by the International Labour Organization (at least 40% of the salary).
According to the experts of the Single Pension Fund, future retirees will receive more than the present ones who are mainly members of the solidarity system. “Payments to pensioners from the system of mandatory contributions are now significantly smaller than the payments that will be received by new pensioners from the savings fund. This is because the current retirees had a shorter period of accumulation (the 10% contributions system was introduced only in 1998), as well as because during the transitional period of the 1990s there was a significant economic downturn in Kazakhstan," the Fund said.
At the moment, the largest amount of pension savings are held by men aged 35-37 years and women aged 37-39 years. These are socially active groups, who have higher wages due to better qualification.