AGING OF THE POPULATION: WILL WE GET OUR PENSION?
Life expectancy and the number of elderly people are growing
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 have begun to live longer. Life expectancy has increased significantly worldwide over the past few decades and continues to grow.
If in 2010 a woman lived in Kazakhstan for an average of 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 forecasts, in 2050 life expectancy 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, the statistics are even more rosy. According to the EPPF study, men and women who have reached retirement age, on average, already live to 80-82 years.
As a consequence of the increase in life expectancy, the share of elderly people in the total population is increasing. According to the Bureau of National Statistics in Kazakhstan, the share of the population aged 60 years or older has increased from 10% in 2010 to 13% in 2022. By 2050, according to the forecasts of the EPPF and the UN, 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 aging process of the population in the country, in addition to the increase in life expectancy, is a gradual decrease in the birth rate.
UN calculations show that in Kazakhstan the total fertility rate will decrease from 3.32 in 2021 to 2.13 children per woman by 2050. The downward trend in the birth rate was the result of trends to strengthen the processes of urbanization, gender equality and women's participation in the workforce.
In the context of a gradual decline in fertility rates and an increase in life expectancy, the demographic burden on 1 able-bodied person increases.
The "potential support coefficient" is decreasing
World experience shows that a pension system based on generational solidarity can function in a balanced way only with a ratio of 4 to 1 (there are 4 working people per 1 pensioner). In the opposite case, the growing imbalance leads to the need to cover expenses by the state, 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 EPPF and the UN, the ratio of people of working age (25-64) to pensioners (65+) will halve by 2050: only 3.6 people of working age will account for one pensioner aged 65 and older, which will increase the tax "burden" on the able-bodied population. Thus, the growing trend in the number of older people poses a serious challenge to society related to their pension provision. This task can be solved by an accumulative pension system that is more resistant to demographic and economic development processes.
Pension system of Kazakhstan in the conditions of population aging
Understanding the structure of the existing pension system will certainly help future pensioners 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-level pension system. The first level includes payments from the state budget (solidary and basic pension), the second level is a mandatory funded system that includes monthly pension contributions, the third level is a voluntary funded system that includes payments from voluntary pension contributions.
The time when the state was fully responsible for providing 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 solidary pension to those who have work experience before 1998 (at that time pension contributions were made to the state budget). However, starting in the 2040s, people whose work began after 1998 will begin to retire. But they will no longer be able to use solidarity payments, and the amount of the pension received will mainly depend on individual pension savings.
Therefore, the accumulative component of the multi-level pension system in Kazakhstan is of particular importance, which can reduce the burden on the budget and increase the amount of pensions in the future.
The funded part of the pension, which will provide us in old age, depends only on ourselves. As much as we save up, we will get as much when we become pensioners. This is absolutely logical and fair.
Here is an example of how the accumulative pension system works. The depositor, who began to make regular mandatory pension contributions (12 times a year) from the average monthly salary in the republic since 1998 at the age of 23, by the beginning of this year became the owner of savings of about 6 million tenge. Such a volume of savings allows you to receive a monthly payment of 32,000 tenge from the UAPF for 18-20 years, which corresponds to the average life expectancy of citizens in retirement.
However, it should be noted that by now the accumulative pension component in Kazakhstan has passed only half of the way of formation. 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 above-mentioned depositor, provided that in the future income remains at the level of SMZ 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 from the UAPF in the amount of 86,000 tenge. In addition, this depositor, who has more than 35 years of experience, is entitled to a state basic pension payment in the amount of 48,680 tenge at current prices.
For comparison: for a depositor who has been making regular mandatory pension contributions (12 times a year) since 1998 from the minimum wage in the republic (hereinafter referred to as the minimum wage), the amount of savings by the beginning of this year will be about 1 million tenge. If future incomes remain at the level of the minimum wage and the regularity of contributions by 2038, the amount of savings will be about 3 million tenge at current prices. Since the minimum monthly payment from the UAPF is 70% of the subsistence minimum, this depositor will receive a pension from the UAPF for about 10 years.
Regularity and completeness of pension contributions is the main condition for an adequate level of pension provision
These examples clearly show that the amount of savings depends on the regularity, completeness and size of pension contributions, and therefore on employment and income of the population.
According to the standards of the International Labor Organization, in order to ensure adequate retirement income, the pension received must be at least 40% of the lost earnings. At the same time, 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, with the objective reduction of the solidarity component, 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 due to the regularity and completeness of pension contributions.
Therefore, it is so important to carefully monitor your savings, monitor them literally from every salary. If suddenly contributions for a certain 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 payments.
So the recipients of "gray" salaries should understand that they are thus reducing 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 for a long time, but also qualitatively, actively, and fascinatingly. May our old age become for us a golden time of new opportunities, impressions and joy.