On the concept of further modernization of the pension system of the Republic of Kazakhstan until 2030

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Decree of the President of the Republic of Kazakhstan dated June 18, 2014 No. 841

In order to further modernize the pension system

I DECREE:

1. Approve the attached The Concept of further modernization of the pension system of the Republic of Kazakhstan until 2030 (hereinafter referred to as the Concept).

2. The Government of the Republic of Kazakhstan and state bodies directly subordinate and accountable to the President of the Republic of Kazakhstan should take the necessary measures to implement the Concept.

3. Control over the implementation of this Decree is entrusted to the Administration of the President of the Republic of Kazakhstan.

4. This Decree shall enter into force from the date of its signing.

President of the Republic of Kazakhstan N.Nazarbayev

APPROVED

By Decree of the President of the Republic of Kazakhstan dated June 18, 2014 No. 841

THE CONCEPT

further modernization of the pension system of the Republic of Kazakhstan

until 2030

Astana, 2014

content

1. Introduction 2. Purpose and objectives of the Concept 3. Analysis of the current situation, trends, vision of development and the need to modernize the pension system of the Republic of Kazakhstan 3.1. Analysis of the current situation 3.2. Overview of world experience 3.3. Periods of implementation 3.4. Expected results from the implementation of the Concept 4. Basic principles and general approaches to the development of the pension system of the Republic of Kazakhstan 4.1. Basic principles of the development of the pension system of the Republic of Kazakhstan 4.2. The main directions of development of the pension system of the Republic of Kazakhstan Improving the system of minimum pension guarantees Introduction of the conditional accumulative component of the pension system Improving the parameters of the funded pension system Improvement of the mandatory professional pension scheme for individuals, Reform of pension provision for law enforcement personnel, expansion of the pension system coverage of the population and improvement of the quality of pension services provided 5. List of regulatory legal acts through which the Concept is expected to be implemented

1. Introduction

The concept of further modernization of the pension system of the Republic of Kazakhstan until 2030 (hereinafter referred to as the Concept) was developed in accordance with the instructions of the Head of State, voiced in the Address of the President of the Republic of Kazakhstan to the people of Kazakhstan on pension reform on June 7, 2013, taking into account Messages of the President of the Republic of Kazakhstan "Strategy "Kazakhstan - 2050": a new political course of the established state". The need to modernize the pension system in the Republic of Kazakhstan is dictated by: 1) a reduction in the size of solidarity pensions and the need to further diversify sources of pension payments; 2) long-term demographic trends and cyclical economic development; 3) the need to further optimize the distribution of responsibility for pension provision between the state, employer and employee. The concept defines the main priorities, as well as mechanisms for implementing the state pension policy until 2030 and is based on an assessment of the experience of implementing pension reforms in the Republic of Kazakhstan and global trends in the development of pension systems.

2. The purpose and objectives of the Concept

The purpose of the Concept development is to modernize the pension system, which will ensure the adequacy of pension payments for a decent standard of living in retirement. The objectives of the Concept are: 1) to ensure the financial stability and transparency of the pension system, which guarantees the fulfillment of social obligations to participants in the pension system; 2) to expand the coverage of the population by the pension system, both mandatory and voluntary components.; 3) diversification of sources of income in retirement (public, private, professional, solidarity and accumulative); 4) ensuring the availability and quality of pension services; 5) increasing the transparency of investment management of pension assets. To achieve these objectives, work will be carried out in the following main areas: 1) at the basic level, in order to reduce poverty among pensioners and stimulate citizens' participation in the pension system, the mechanism for assigning state basic pensions will be improved.; 2) the funded component will be retained at the mandatory level and an additional component will be introduced - the conditional funded component, formed by 5% of employers' contributions to their employees; 3) the third voluntary level, formed by voluntary pension contributions from employees and/or employers, will be retained and further developed.

3. Analysis of the current situation, trends, vision of development and the need to modernize the pension system of the Republic of Kazakhstan

3.1. Analysis of the current situation

As a result of the radical reform of the pension system in Kazakhstan, which began in 1998: 1) the legislative framework for regulating the pension system has been formed; 2) a multi-level pension system has been created and is functioning at the basic, mandatory (solidary and accumulative) and voluntary levels; 3) a state guarantee for the safety of pension savings of depositors (recipients) has been introduced; 4) In 2013, in order to develop the institutional framework and improve the efficiency of the accumulative pension system, the Unified Accumulative Pension Fund (UAPF) was established. As of April 1, 2014, it consolidated 3.9 trillion tenge of pension assets in 9.6 million individual pension accounts of depositors for mandatory pension contributions; 5) a professional pension scheme for persons employed in jobs with harmful (especially harmful) working conditions was formed.; 6) the financing of the pension program is steadily increasing and the amount of pension payments is increasing. From 1998 to 2013, expenditures for these purposes increased 10.6 times, and the size of the average pension, including the basic pension payment, increased 11.8 times (from 3,964 to 46,661). Thus, the implementation of the above-mentioned measures has created conditions for ensuring an income replacement ratio with pension payments that meets international standards, which amounted to 44.6% of the average monthly salary in the economy as a whole on January 1, 2014. Despite the positive development trends, while maintaining the current parameters of the pension system, a decrease in the replacement rate is expected, which is associated with: 1) the presence of informal labor relations and the shadow sector in the economy, narrowing the coverage of the population with the services of the accumulative pension system (NPS); 2) low wages for certain categories of workers, especially the self-employed in the agricultural sector; 3) insufficient liquidity of the domestic stock market for the effective implementation of investments at the expense of pension assets; 4) the gap between the real growth rates of wages over the past 20 years and the growth rates of labor productivity; 5) the persistence of a relatively high level of inflation.

3.2. Overview of global experience

The reform of pension systems carried out in recent years in a number of countries of the world community is dictated by socio-economic instability and the acceleration of the global aging process. The ongoing pension reforms in most OECD countries provide for: 1) the introduction/maintenance of multi-level pension systems combining distributive and accumulative schemes with minimum guarantees; 2) strengthening insurance financing mechanisms for pension programs aimed at formalizing labor relations and reducing shadow employment; 3) raising the retirement age to 65-67 years and tightening conditions for early retirement in order to reduce the burden of financing pension programs, prolong the duration of work activity and stabilize the workforce in an aging population; 4) increasing the dependence of pension amounts on participation in the formation of pension reserves throughout working life (Italy, Sweden, Poland, Russian Federation); 5) strengthening control and supervision over the financial activities of pension funds (in Germany, for example, a law on strengthening independent supervision and financial risk management has been adopted. In Norway, the system for determining the financial viability of private pension funds has been tightened). Global experience shows that both distributive and accumulative pension systems have their drawbacks and advantages. The advantage of distributive pension systems based on current financing lies in the independence of pension amounts from the results of the functioning of financial markets and the activities of pension funds. Pensions funded in this way provide more reliable protection and a higher replacement rate for low-wage earners. The accumulative pension system motivates the population to accumulate personal savings and independently ensure their own old age, establishing the dependence of the amount of pension payments received on the contributions made and the result of their investment management. In general, an analysis of global experience shows that the most effective and financially sustainable pension systems are multilevel models that combine both distributive and accumulative principles of operation. Mixed systems make it possible to reduce the risks inherent in each of the systems by diversifying them, as well as leveling their disadvantages and using their advantages.

3.3. Implementation periods

The concept is designed for the long term. At the first stage (2016-2020), it is planned to lay the legal foundations and ensure the implementation of priority measures to modernize the pension system. At this stage, the following main directions will be implemented: 1) improving the system of minimum pension guarantees; 2) introducing a conditional funded component of the pension system; 3) improving the parameters of the funded pension system, including the procedure for pension payments and the institution of state guarantees; 4) improving pension provision systems for people employed in jobs with harmful (especially harmful) working conditions; 5) reforming pension provision for law enforcement officers; 6) expanding the coverage of the population with pension system services. At the second stage (2020-2030), measures will be taken to increase the efficiency of the modernized pension system and further improve the mechanisms for protecting the rights of depositors and recipients of pension payments. This stage will be characterized by: 1) increasing the efficiency of the pension system by strengthening the relationship between pensions and contributions, the period of participation and the age of retirement; 2) further improving the system of minimum pension guarantees, including the transition from a basic pension payment to a minimum guaranteed pension, which will optimize the mechanism for providing state guarantees; 3) the introduction of the obligation to conclude an agreement providing for lifetime pension payments (pension annuity) only for NPS participants.

3.4. Expected results from the implementation of the Concept

The implementation of the Concept will ensure: 1) the adequacy of pension payments and the creation of a balanced financially stable pension system; 2) maintaining the replacement rate of total pension payments at least 40% of lost earnings until 2030 with at least 35 years of experience in the pension system and the regularity of deductions 12 times a year (at the international level standards); 3) expansion of the funded pension system coverage to 80% of the employed population by 2030; 4) preservation of pension savings; 5) optimization of the institution of state guarantees for the safety of pension savings. The modernized pension system will be multi-level. The first level includes payments from the state budget (joint and basic pension payments/minimum guaranteed pension). The second level includes payments due to: 1) mandatory pension contributions made by the employee himself; 2) mandatory occupational pension contributions transferred by the employer in favor of employees engaged in work with harmful (especially harmful) working conditions; 3) mandatory pension contributions to the funded component at the expense of the employer. The third level includes all payments from the voluntary component.

4. Basic principles and general approaches to the development of the pension system of the Republic of Kazakhstan

4.1. Basic principles of the development of the pension system of the Republic of Kazakhstan

To effectively solve the tasks set, the main principles of pension system modernization are: 1) consistency and step-by-step transformations; 2) balanced distribution of responsibility for pension provision between the state, employer and employee; 3) protection of pension rights of citizens; 4) transparency of the pension assets management process; 5) systematic transformations of the pension system and their implementation depending on and in relation to macroeconomic development.

4.2. Main directions of development of the pension system of the Republic of Kazakhstan

Improvement of the system of minimum pension guarantees

In accordance with the ideology of social modernization, in order to implement the minimum pension guarantees provided for by international standards, it is proposed to make changes to the organization of pension provision at the basic level. Currently, persons who have reached retirement age: 1) who are participants in the solidarity system and/or transfer pension contributions to the accumulative pension system, the basic pension is awarded in the same amount, regardless of their work experience and salary; 2) those who did not have work experience before January 1, 1998 and did not participate in the funded pension system, are provided with a state age-related social benefit, the amount of which is 50% of the minimum subsistence level. Taking into account international experience, in order to prevent pensioner poverty and stimulate the economic activity of citizens of working age from July 1, 2017, it is proposed: 1) to make the transition to the appointment of a basic pension only when citizens reach retirement age, as well as depending on the length of service of citizens in the pension system; 2) to establish a social pension in the amount of 50 % of the minimum subsistence level for persons with less than 10 years of experience in the pension system; 3) determine, for 10 years of experience in the pension system, a basic pension in the amount of 50% of the minimum subsistence level, for each year over 10 years its amount will increase by 2% and for 35 years or more it will be equal to the minimum subsistence level. The proposed reforms are aimed not only at reducing the poverty of pensioners, but also at strengthening labor motivation and formalizing labor relations among citizens. They meet the interests of both established and future generations of pensioners. For established pensioners, a one-time recalculation of the basic pension will be carried out, taking into account the length of service in both solidary and funded pension systems. This will increase the amount of pension payments for pensioners with long work experience, but receiving low pensions due to the lack of information on income at the time of retirement, as well as legally established restrictions. For citizens retiring during the transition period from the solidarity to the funded system (until 2030), the basic pension will be awarded taking into account: 1) their work experience accumulated on January 1, 1998; 2) the period of payment of pension contributions to the funded pension system after 1998. For participants of only the funded pension system and the conditional funded component, when they reach retirement age (starting in 2030), a transition will be made from the appointment of a basic pension to the appointment of a minimum guaranteed pension if their total pension payments fall below the established minimum socially acceptable pension level. In addition, solidary pension payments are maintained for both established pensioners and citizens with at least 6 months of work experience as of January 1, 1998. The appointment and payment of solidarity pensions will be carried out in accordance with the current legislation along with basic, conditional and funded pensions. At the same time, in order to maintain the size of solidarity pensions at an acceptable level under the current pension legislation, their amounts will be indexed annually ahead of the inflation rate by two percent.

Introduction of the conditional accumulative component of pension provision systems

In order to maintain the adequacy of pension provision, starting in 2018, it is proposed to introduce a new conditional funded component of the pension system. The new conditional accumulative component supports both accumulative and distributive principles of pension provision. Participants in the conditional funded component will be employees, in whose favor employers will transfer mandatory 5% pension contributions accrued from the employee's income, at the expense of the employer. Contingent liabilities are recorded on individual accounts opened with the UAPF. The savings are conditional, are not inherited, and are not the property of a participant in the system. Contributions are capitalized and invested in financial instruments, while profitability will be formed depending on the results of investment activities, as well as the state of financial markets. The minimum length of service is 5 years, at which time the right to pension payments begins. Payments are made only upon reaching the established retirement age. Pension payments will be made for life. The amount of pension benefit indexation will depend on the demographic component and financial performance of the system. The state guarantee for the safety of contributions, taking into account the inflation rate, does not apply to the funded component.

Improving the parameters of the funded pension system

The payment of pensions from the current funded pension system, formed at the expense of 10% of the deductions of the employees themselves, will be maintained. At the same time, the amount of pension payments received depends on the regularity of contributions from citizens to the system, as well as the level of profitability of pension savings. The investment of pension assets of the UAPF will be carried out within the framework of the investment strategy, which will be approved. The UAPF Pension Asset Management Council. The strategy of investing pension assets of the UAPF will be aimed at ensuring the safety of pension savings. The placement of pension assets of the UAPF will be carried out in financial instruments included in the The list of permitted financial instruments. In addition, to increase the efficiency and ensure the financial stability of the accumulative pension system, the following transformations will be adopted: 1) abolish the lump-sum (one-time) principle of withdrawal of pension savings, with the exception of pension savings amounts not exceeding 12 minimum pensions; 2) make pension payments from the UAPF only on a schedule (monthly) or by purchasing a pension annuity; 3) review the basic basis for calculating the cost of a pension annuity; 4) establish the obligation to conclude an agreement providing for lifetime pension payments (pension annuity) only for NPS participants; 5) introduce a mechanism for joint annuities that can partially solve the gender problem of lower pensions for women; 6) optimize the payment procedure for the state guarantee for the safety of mandatory pension benefits. contributions by acquiring the right of citizens to pay it only if they reach retirement age. At the same time, the amounts of payment of the difference under the state guarantee will have to be credited to individual pension accounts.

Improvement of mandatory professional pension schemes for persons employed in jobs with harmful (especially harmful) working conditions

The need to transform the pension system in this segment is due to the fact that the current system does not compensate for the risks associated with employment in jobs with harmful (especially harmful) working conditions. Therefore, starting from January 1, 2014, in addition to the mandatory pension contributions of employees, mandatory occupational pension contributions (OPP) were introduced in the amount of 5% of the wage fund. At the same time, employers deduct workers only for those types of industries that are classified as harmful, and only to those persons who are employed in them. The list of types of harmful industries and the list of professions of workers employed in them has been approved by the Government of the Republic of Kazakhstan and will be periodically reviewed taking into account changes in working conditions. In order to encourage employers who have jobs with special working conditions, it is legally stipulated that in the case of improvement of working conditions and optimization of such jobs, according to the results of certification of workplaces, the payment of compensation is not carried out. This will make it possible, with continuous participation in the system (for at least 30 years) and regular contributions (12 times a year), to provide sufficient funds for early retirement.

Reforming pension provision for employees of law enforcement agencies

Improvement of mandatory professional pension schemes for persons employed in jobs with harmful (especially harmful) working conditions

Reforming pension provision for employees of law enforcement agencies

In world practice, pension provision for employees of law enforcement agencies is carried out mainly on a joint basis. The need for new solutions and approaches to the organization of the pension system for military personnel, employees of special state and law enforcement agencies, as well as persons whose rights to have special ranks, class ranks and wear uniforms have been abolished since 2012 (hereinafter referred to as law enforcement officers) is caused by the disparity in the cost of their pension provision with the size of pension payments today and the projected inadequacy in the long run. For adequate pension provision for law enforcement officers, it is proposed to implement the following measures starting in 2016: 1) transfer to full state pension provision for all law enforcement officers with a total work experience of 25 years or more, of which at least 12.5 years is continuous military service, service in special state and law enforcement agencies; 2) also provide the right to state pension provision for years of service for: ordinary and junior senior staff of law enforcement agencies; pensioners who arrived from the CIS countries with more than 20 years of service, in an amount proportional to their existing length of service; citizens who first joined the service after January 1, 1998 and were dismissed with the right to pension payments for years of service, but without the right to receive pension payments from budgetary funds, which will ensure a unified approach to all employees of law enforcement agencies in the issue of pension provision; 3) repeal the provision on the payment of mandatory pension contributions from budgetary funds in the amount of 20% of the salary of law enforcement officers; 4) subject to the transfer of law enforcement officers to state pension provision, it is proposed to make a one-time return to budget income of half of their pension savings transferred from budget funds, while retaining the other half in the individual pension accounts of employees in the UAPF; 5) for established pensioners, in order to eliminate an imbalance in the amount of assigned pension payments, it is proposed to carry out a one-time recalculation of the amount of previously assigned pension payments in an incomplete amount, taking into account their full length of service and seniority on the day of dismissal from service, available in the pension business (at the expense of 50% returned to the budget retirement savings). The implementation of the proposed measures will lead to the compliance of pension provision for law enforcement officers with international standards.

Expanding the coverage of the population by the pension system and increasing the quality of pension services provided

In order to overcome negative trends in the labor market, formalize labor relations, and reduce the shadow economy, a new draft law on employment will be developed, aimed at strengthening citizens' personal interest and responsibility in obtaining and increasing income. For these purposes: 1) indicators will be interconnected The State Program of Industrial and Innovative Development of the Republic of Kazakhstan for 2015-2019, other state and sectoral programs in terms of creating new jobs and promoting productive employment; 2) implemented A comprehensive plan to combat the shadow economy in the Republic of Kazakhstan for 2014-2015, aimed, among other things, at legalizing labor relations and income; 3) a law on trade unions will be adopted, providing for increased interaction between the parties to the social partnership, expansion of labor representation, including issues of coordinating full, regular and timely contributions of pension contributions; 4) measures will be taken to improve the mechanisms The Employment Roadmap 2020, which will expand the coverage of the self-employed and unemployed, as well as stimulate their participation in the pension system; 5) it provides for the improvement of tax administration by reforming the current procedure for a special tax regime (agricultural producers, farms and individual entrepreneurs); 6) the level of remuneration for public sector employees will be increased through the introduction of a new model pay for their work; 7) measures are being taken to improve social support, providing for the provision of targeted social assistance to able-bodied citizens, provided they participate in active measures to promote employment. In addition, measures will be taken to enhance explanations of the main provisions of the ongoing modernization of the pension system using various communication channels (Internet resources, e-government, contact centers, an extensive branch network of the UAPF), which contribute to raising public awareness. To ensure the availability and quality of pension services, it is proposed to simplify the administrative procedures related to the implementation of pension payments based on the "one-stop shop" principle. The inclusion of UAPF services for informing and advising depositors (recipients) about the state of pension savings, taking into account investment income, through the provision of services through public service centers, the e-government portal, and branches of Kazpost JSC will increase the level of accessibility and quality of service for depositors (recipients).

5. List of regulatory legal acts through which the Concept is supposed to be implemented

To implement the Concept, it will be necessary to amend the following regulatory legal acts: 1) The Code of the Republic of Kazakhstan dated December 10, 2008 "On Taxes and other mandatory payments to the Budget (Tax Code)"; 2) The Law of the Republic of Kazakhstan dated June 21, 2013 "On pension provision in the Republic of Kazakhstan"; 3) The Law of the Republic of Kazakhstan dated June 16, 1997 "On State social benefits for disability, loss of breadwinner and age in the Republic of Kazakhstan".

President

Republic of Kazakhstan

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