What will change in the funded pension system with the entry into force of the Social Code?

On July 1 of this year, the Social Code will come into force, introducing a number of innovations regarding the pension system.

Expanding Investment Opportunities for Investors

When transferring pension savings from mandatory pension contributions and mandatory professional pension contributions to the trust management of investment portfolio managers (IPMs), the minimum pension savings sufficiency threshold will no longer be taken into account. With the entry into force of the Social Code, investors will have the right to transfer up to 50% of these pension savings to the IPMs' trust management.

Additionally, investors with voluntary pension savings will be able to transfer up to 100% of these pension savings to the IPMs.

The period for returning pension savings from the IPMs' trust management to the National Bank of the Republic of Kazakhstan will be reduced by one year. Currently, this period is two years.

Using pension savings for housing and medical treatment

Pensioners who have retired after completing their years of service will be able to use up to 100% of their pension savings, accumulated through mandatory pension contributions, to improve their housing conditions and medical treatment. This category of pensioners includes military personnel, employees of special government and law enforcement agencies, and the state courier service, as well as individuals whose rights to hold special ranks, class ranks, and wear uniforms were abolished as of January 1, 2012. These pensioners also include individuals whose medical positions were reduced in the internal affairs agencies of the Republic of Kazakhstan as of July 1, 2022, and January 1, 2023. These pensioners, who at the time of the reduction in their positions, had at least twelve years and six months of continuous military service, service in special government and law enforcement agencies, or the state courier service, provided they continue to work in medical facilities located in pretrial detention facilities and institutions of the penal system. Other pensioners retain the right to use up to 50% of their pension savings, formed through mandatory pension contributions, for the above-mentioned purposes, provided the amount of their pension payments ensures an income replacement rate of at least 40%.

Increase in Funeral Payments

The lump sum funeral payment in the event of the death of an individual with pension savings in the Unified Accumulative Pension Fund (UAPF) or the Voluntary Pension Fund (VNPF) will increase from 52.4 times to 94 times the minimum wage established for the relevant financial year by the law on the republican budget, but no more than the funds available in the individual pension account of the deceased. This payment may be made to family members of the deceased.

Mandatory Pension Contributions by Employers

Starting January 1, 2024, in addition to the existing functions of the UAPF, mandatory pension contributions by employers (MPCs) will be available.

MPCs will be paid only for employees born after January 1, 1975, from the employer's own funds, and are based on the employee's monthly income: from January 1, 2024, at 1.5% and will increase annually by 1% until reaching 5% in 2028. This phased introduction of the mandatory pension contribution system will help reduce the burden on employers.

Mandatory pension contributions for everyone

Individuals permanently residing in the Republic of Kazakhstan who receive income under civil contracts for the performance of work (provision of services) concluded with individuals who are not tax agents, as well as individuals permanently residing in the Republic of Kazakhstan who work in representative offices of international organizations in the Republic of Kazakhstan, diplomatic missions, and consular offices of foreign states accredited in the Republic of Kazakhstan, are currently entitled to pay the mandatory pension contribution system (MPC) to the UAPF. Effective July 1, 2023, this category of individuals will be required to pay the mandatory pension contribution system (MPC) to the UAPF. This increases the coverage of the population by the funded pension system to ensure adequate payments in the future.

 

Reduction of the ENPF commission fee

The amount of the ENPF commission fee will be reduced from 0.01 percent of pension assets to 0.008 percent per month. However, it cannot exceed the amount determined as the product of 0.04 times the monthly calculation indicator established by the law on the republican budget and in effect as of January 1 of the corresponding financial year, and the number of individual pension accounts of contributors (recipients) with pension savings, based on mandatory pension contributions, opened in the ENPF as of the first day of the corresponding calendar month.

 

 

The ENPF was established on August 22, 2013, on the basis of JSC NPF GNPF. The founder and shareholder of the ENPF is the Government of the Republic of Kazakhstan, represented by the State Property and Privatization Committee of the Ministry of Finance of the Republic of Kazakhstan.