Life expectancy and the number of older people are on the rise
We are living in a time of amazing demographic transformation. The facts show that thanks to the development of science and the achievements of modern medicine, people began to live longer. Life expectancy has increased significantly worldwide over the past few decades and continues to increase.
If in 2010 in Kazakhstan a woman lived on average 73.3 years, and a man - 63.5 years, then in 2021 these values were already 74 and 66.3 years, respectively. According to UN projections, life expectancy in 2050 will be 79.2 years for women and 71.6 years for men. For comparison, according to the UN, in the world from 2010 to 2021, life expectancy increased from 72.7 to 73.8 years for women and from 67.6 to 68.4 years for men. And these figures take into account life expectancy from the moment of birth. If we take a cross section of the adult population, then the statistics are even more rosy. According to a study by the UAPF, men and women who have reached retirement age, on average, live to be 80–82 years old.
As a consequence of rising life expectancy, the proportion of older people in the total population is increasing. According to the Bureau of National Statistics in Kazakhstan, the proportion of the population aged 60 years or older has increased from 10% in 2010 to 13% in 2022. By 2050, according to UAPF and UN forecasts, this figure will reach about 17-18%, that is, almost every fifth Kazakhstani will be aged 60 years or older.
The birth rate is falling
It should be noted that another factor in the process of population aging in the country, in addition to the increase in life expectancy, is a gradual decline in the birth rate.
UN calculations show that in Kazakhstan, the total birth rate will decrease from 3.32 in 2021 to 2.13 children per woman by 2050. The downward trend in fertility was the result of trends in the strengthening of urbanization processes, gender equality and women's participation in the labor force.
In the context of a gradual decline in birth rates and an increase in life expectancy, the demographic burden per 1 able-bodied person is increasing.
“Potential Support Ratio” Decreases
World experience shows that a balanced pension system based on the solidarity of generations can only function if the ratio is 4 to 1 (4 working people per 1 pensioner). Otherwise, the growing imbalance leads to the need for the state to cover the costs, which is forced to raise taxes or raise the retirement age to reduce the budget deficit.
There are proportionally fewer working citizens per 1 pensioner in Kazakhstan. According to the forecasts of the UAPF and the UN, the ratio of people of working age (25-64) to pensioners (65+) will halve by 2050: there will be only 3.6 people of working age per pensioner aged 65 and over, which will increase the tax burden on the working population. Thus, the trend towards an increase in the number of people of the older generation poses a serious challenge for society related to their provision of pensions. This task can be solved by a funded pension system, which is more resistant to demographic and economic development processes.
The pension system of Kazakhstan in the context of an aging population
Understanding how the current pension system works will certainly help future retirees prepare for retirement. This also applies to people who will retire in the near future, and especially those who are just starting their career.
Kazakhstan has a multi-tier pension system. The first level includes payments from the state budget (solidarity and basic pension), the second level is a compulsory accumulative (funded) system, which includes monthly pension contributions, the third level is a voluntary funded system, which includes payments from voluntary pension contributions.
The time when the state was given full responsibility for providing for pensioners is a thing of the past. Of course, the state will pay a basic pension to all Kazakhstanis who have reached retirement age, and a solidarity pension to those who have worked before 1998 (at that time, pension contributions were made to the state budget). However, starting in the 2040s, people whose employment began after 1998 will begin to retire. But they will no longer be able to use solidarity benefits, and the amount of the pension they receive will mainly depend on individual pension savings.
Therefore, the accumulative component of the multi-tier pension system in Kazakhstan is of particular importance, as it can reduce the burden on the budget and increase the size of pensions in the future.
The accumulative part of the pension, which will provide us in old age, depends only on ourselves. How much we accumulate - so much we will receive when we become pensioners. This is absolutely logical and fair.
Let us give an example of how the accumulative pension system works. The contributor, who began to make regular compulsory pension contributions (12 times a year) from the average monthly salary in the republic (hereinafter referred to as AMS) from 1998 at the age of 23, became the owner of savings of about 6 million tenge by the beginning of this year. This amount of savings makes it possible to receive a monthly benefit of 32,000 tenge from the UAPF for 18–20 years, which corresponds to the average life expectancy of citizens in retirement.
However, we note that by now the accumulative pension component in Kazakhstan has gone only halfway through its development. The full cycle (40 years) of the formation of the accumulative pension system will be completed by 2038. Therefore, the accumulative pension component should be considered in the long term. So, for the aforementioned contributor, provided that future incomes remain at the level of AMS and the regularity of contributions, the amount of savings by 2038 will be about 16 million tenge at current prices, which will provide a monthly pension benefit from the UAPF in the amount of 86,000 tenge. In addition, this contributor, who has a record of more than 35 years, is entitled to a state basic pension benefit in the amount of 48,680 tenge at current prices.
For comparison: for a contributor who has been making regular compulsory pension contributions (12 times a year) from the minimum wage in the republic since 1998, the amount of savings by the beginning of this year will be about 1 million tenge. If income remains at the level of the minimum wage in the future and the regularity of contributions, by 2038 the amount of savings will be about 3 million tenge at current prices. Since the minimum monthly benefit from the UAPF is 70% of the subsistence minimum, this contributor will receive a pension from the UAPF for about 10 years.
The regularity and completeness of pension contributions is the main condition for an adequate level of pension provision
The above examples clearly show that the amount of savings depends on the regularity, completeness and size of pension contributions, and hence on employment and incomes of the population.
According to the standards of the International Labor Organization, to ensure an adequate retirement income, the pension received must be at least 40% of the lost earnings. However, some states may set their own target values. For example, in developed countries, they strive to achieve 60-70% of the lost income. In Kazakhstan, taking into account the solidarity pension, this figure in 2022 was about 46%. In this regard, as the solidarity component objectively decreases, payments from individual pension savings should acquire an increasing share in the total pension in order to achieve an adequate level of pension provision, close to international standards. This can be achieved through the regularity and completeness of pension contributions.
Therefore, it is so important to carefully monitor your savings, control them literally from every salary. If suddenly contributions for some period are not received, you need to contact the tax authorities. It is they who control the timeliness and completeness of pension contributions.
Investment income is accrued on all our savings, and the larger the amount of savings, the higher the income and, accordingly, future pension benefit payments.
So the recipients of "gray" salaries should understand that they thus reduce their pensions in the future. People themselves should be interested in honest, timely deductions. And if possible, it is desirable to use the mechanism of voluntary pension contributions, thereby ensuring a prosperous old age.
Each of us strives to live not only long, but also qualitatively, actively, and excitingly. Let our old age become for us a golden time of new opportunities, impressions and joy.