The world leader among insurance companies and asset managers Allianz has released a new edition of its Global Pension Report (API), according to which Kazakhstan's pension system has been assigned an API rating of 3.5 points as a result of an analysis of 75 pension systems around the world. Kazakhstan was ahead of its CIS neighbors, as well as Spain, Chile, Singapore, the UAE and other countries. These results mean that Kazakhstan's pension system has a level slightly above average in terms of sustainability and adequacy of pension payments in comparison with other countries analyzed by Allianz.
The report is based on current data as of March 2023. The Allianz Pension Index (API) is designed for a comprehensive assessment of the sustainability and adequacy of pension systems. It consists of three sub-indexes and takes into account 40 parameters evaluated on a scale from 1 to 7, where 1 means the best result.
According to the report, the average score for all pension systems studied was 3.6. This indicator is slightly better compared to previous years, taking into account limited opportunities in most countries after the COVID-19 pandemic, which was followed by unprecedented global hyperinflation fueled by the energy crisis and rising food prices due to global political events. Despite the need for pension reforms, few countries have made significant improvements. Denmark, Sweden and the Netherlands are at the top of the index with a final score of up to 3, since their pension systems legislatively provide for automatic adjustment of the official retirement age depending on changes in life expectancy, and there are also strong professional and private accumulative pension components.
The country with the best pension system according to Allianz was Denmark with a score of 2.2 points, followed by the Netherlands and Sweden, who scored 2.6 points each, then New Zealand – 2.8 points, the USA, Taiwan and Israel – 2.9 points each, Belgium and Australia – 3.0 points each. South Korea closes the top ten with a score of 3.1 points. The lowest positions in the rating are occupied by the pension systems of Morocco, Lebanon and the United Arab Emirates. These countries are characterized by problems of low retirement age, low coverage of the population by the pension system and rapid aging of the population. One of the factors contributing to low coverage is the prevalence of informal employment in many developing countries, which underscores the need to reform labor markets along with pension system reforms.
The Allianz report focuses on the issue of population aging, as these demographic processes are one of the main challenges to pension systems in the world. According to forecasts, by 2050, about 1.6 billion people worldwide will reach 65 years or more, of which about 1 billion are in Asia (mostly in India and China). The dynamics of life expectancy will increase from the global average of 73.4 years in 2023 to 77.2 years by 2050.
Therefore, it is extremely important to prepare pension systems for demographic changes in order to ensure long-term financial stability and avoid excessive burden on future generations. Allianz emphasizes the need to find a balance between sustainability and adequacy, which may require a reduction in government benefits in industrialized countries and additional pension provision (professional and private pension plans) to achieve a decent standard of living for the elderly.
Over the past year, some countries have taken measures to improve the long-term sustainability and adequacy of their pension systems, including raising the retirement age in some countries (France), introducing mandatory pension contributions for all private sector workers (Cambodia) and introducing incentives for additional private security funded by capital (pension savings). However, according to statistics, the retirement age in many countries does not reflect changes in life expectancy: only eight out of 75 countries have established an automatic binding of the retirement age to changes in life expectancy at the level of the law. 33 countries plan to raise the retirement age until 2050.
As Allianz notes, the adequacy of pension systems is determined not only by financial stability, but also by the level of payments, as well as the income replacement coefficient. The replacement coefficient for pensions of the first level of the pension system should be from 40% to 60% of the average salary in accordance with the standards of the International Labor Organization. The latest OECD statistics show that Brazil has one of the most generous pension systems with a replacement rate of 89%, while Kenya, Lebanon and South Africa have a replacement rate of only 15%. In Germany, the USA and Japan, pension replacement rates range from 30% to just over 40%. The income replacement rate in Kazakhstan, taking into account the solidarity pension in 2022, was about 46%.
In their report, Allianz experts note that building a sustainable and adequate pension system is an achievable task if a strong funded component is introduced.
Allianz recommends starting the reform of the pension system with the transformation of the labor market: without increasing the share of formal employment in emerging economies and without involving older workers in the workforce in developed countries, even the most well-designed pension reforms will not bring results.
UAPF was established on August 22, 2013 on the basis of JSC "NPF "GNPF". The founder and shareholder of the UAPF 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. The trust management of pension assets of the UAPF is carried out by the National Bank of the Republic of Kazakhstan. Since January 1, 2016, the functions of developing proposals to improve the efficiency of pension assets management have been transferred to the National Fund Management Council. In accordance with the pension legislation, the UAPF attracts mandatory pension contributions, mandatory occupational pension contributions, voluntary pension contributions, pension payments, individual accounting of pension savings and payments, provides the depositor (recipient) with information on the status of his pension savings (more on www.enpf.kz )