Chair of the Council of the Association of Financiers of Kazakhstan (AFK) Elena Bakhmutova named three reasons why Kazakhstan needs a pension system reform. Among them are irregular contributions by citizens, withdrawal of pension assets for housing and treatment, and self-employment. In addition, the expert believes that the basic state pension was indexed insufficiently and has "fallen behind." This was reported by Qazaqyia.kz citing Kursiv Media.

According to her, Kazakhstanis who for one reason or another did not regularly make mandatory pension contributions to their UAPF account since 1998 end up facing insufficient savings by the time they retire.

"Despite the fact that our (funded pension – Kursiv) system has been mandatory since 1998, it turned out that we have a significant part of people who have already reached retirement age or are about to reach it, but during the period since the funded pension system came into effect they have not formed a sufficient amount of their pension savings," she said in an interview with UAPF.

According to her, Kazakhstanis did not accumulate enough in pension accounts before retirement for two reasons.

"Either they did not pay, that is, they evaded in every possible way. Or they were self-employed, worked somewhere, freelancers, and so on. That is, it turned out that they, so to speak, avoided the mandatory payment of these contributions," said Elena Bakhmutova.

In addition, these Kazakhstanis could not fully take advantage of the compound interest effect, in which investment income is accrued not only on initial savings and monthly contributions, but also on previously received income. According to the AFK representative's estimate, a sufficient level of savings can be considered one in which 40% of the final amount is formed by contributions, and the remaining 60% by investment income.

"That is exactly how it should be. But, unfortunately, it turned out that people did not make contributions on time and then it turned out that they had few of these savings. This is the first part. The second part is that people withdrew this money to purchase housing... The amounts are large, reaching up to 5 trillion," she said.

At the same time, Elena Bakhmutova recalled that there were also abuses in withdrawing pension money. In general, Kazakhstanis withdrew money for treatment and improving housing conditions.

"But this led to the fact that they (after withdrawing pension money – Kursiv) have insufficient investment savings. This is the second part. And the third part, it is objective, that our employment structure has changed," she said.

According to her, some Kazakhstanis are self-employed without the status of an individual entrepreneur, while others are engaged in agriculture. As a result, this category of persons does not form pension contributions in sufficient amounts.

"A study was conducted at UAPF with the participation of international experts, who determined that we have, in principle, a mature, good three-tier funded system, but it is effective if this funded component provides a contribution through contributions that amount to somewhere around 13-14% of income.... Even if you paid 10%, but you paid them in a timely manner, at least regularly, always and specifically monthly, then by the time you retire... this component would be sufficient for you," believes Elena Bakhmutova.

The AFK representative believes that as people with pre-1998 service, who are entitled to a solidarity pension, leave the workforce, the share of the funded pension system in Kazakhstan should have grown, but now it is necessary to somehow motivate people who do not have employers in the form of large enterprises to make regular contributions. Another point was that the basic pension was not indexed to the required extent.

"We now have a basic pension payment, which is paid to all citizens upon reaching retirement age, that was not properly indexed, because it depends on the subsistence minimum, not on wages, and it has fallen somewhat behind," she said.

Another problem, according to the AFK representative, is the system of spending pension savings in old age.

"When you receive money from UAPF, the average survival period is calculated (how long a person will live while receiving a pension – Kursiv), but there are those people who in fact live longer, and at some point their pension savings run out, they continue to live, and they have only the basic pension payment in reserve, or the solidarity one they had. And as a result, it turns out that at such an already serious age, when working capacity is definitely lost and health is no longer what it was, they experience a loss of income," said Elena Bakhmutova.

In this regard, specialists began to think about how the funded pension system could be improved.

"There are different options for improving the funded system. But in our proposal we based ourselves on the fact that three components need to be improved at once. That is, the basic pension payment component, the funded pension system component, and the conditionally funded system, which is now being introduced but has not yet been fully formed," she said.

According to her, as a result, it is now proposed that out of the 5% mandatory employer contributions, 4% be directed to the regular funded system, and 1% be left for the redistribution of money so that people who managed to live longer could count on this money.

"It is necessary to somehow motivate people who are now engaged in platform, hired employment, in general, those who do not have employers or individual entrepreneurs. They must realize that they too must pay, first, mandatory contributions, plus this part (conditionally funded 5% – Kursiv)," she said.

In addition, Kazakhstanis may in the future have their basic state pension payment increased.

"We believe that today about 3% of GDP goes to solidarity and basic pensions. These are current budget expenditures. If nothing is done, they will decrease (due to the abolition of the solidarity pension – Kursiv). But then this system will already be unstable. We believed that these 3% within the budge