In connection with the epidemiological situation and the increase in the incidence of coronavirus infection (COVID-19), the next, fourteenth meeting of the Public Council at the UAPF was held in an online format.
The meeting of the Council was opened by its chairman Yevgeniy Seipulnik. He informed that Vasilina Atoyants, Aleksey Baiteyev, Anna Vidyanova and Kuat Dombay left the Council of their own free will. Three new candidates were proposed: Adil Mamazhanov, General Director of the Expert RA Kazakhstan Rating Agency, Zhomart Nurabaev, Deputy Chairman of the Board of the ALMEX Holding Group Joint Stock Company, and independent economist Aydarkhan Kusainov. All three were adopted by unanimous decision to the Public Council.
Further, a detailed report on the activities of UAPF JSC as of June 1, 2020 was presented.
The total number of accounts in the UAPF reached 10.9 million, which exceeds the number of the employed population of 8.8 million. This is due to the fact that not only working citizens who pay pension contributions, but also recipients who have already retired, servicemen transferred to state pensions, as well as other citizens who do not belong to the category of the employed population, have accumulations in the UAPF.
Pension accumulations as of June 1, 2020 amounted to KZT 11.7 trillion. The increase since the beginning of 2020 was due to the receipt of contributions (KZT 428 bln) and due to net investment income (KZT 499 bln).
About 70% of contributors have accumulations up to KZT 1 mln and 91% have accumulations up to KZT 3 mln. This is due to the short experience of participation in the accumulative pension system: 53% of contributors have experience of regular transfer of contributions up to 5 years and 75% - up to 10 years. At the same time, the average accumulations of contributors with more than 20 years of experience in making contributions amounted to KZT 4.9 mln, including KZT 5.5 mln among men and KZT 4.1 mln among women.
The level of accumulations also reflects the level of labor income of the population from which contributions are paid: in 2019, 53% of contributors paid contributions from incomes up to 4 minimum cost of living (MCL) (1 MCL in 2019 was KZT 29,698). Contributors with incomes below the average also have lower regularity of contributions. At the same time, the average regularity of payment of contributions by all contributors is about 8.13 contributions per year.
The largest increase in the opening of individual pension saving accounts (IPSA) fell on April 2020. In this month, 954,952 new accounts were opened, including 941,425 accounts were opened by payers of the Unified Aggregate Payment (hereinafter - UAP) for the first time. In April 2020, 2.98 million UAP payers made about 3.02 million UAP contributions totaling 1.7 bln. At the same time, 56% of the UAP payers were residents of rural areas, and 44% of payers were residents of urban areas.
The number of active contributors is growing every year. In 2019, the number of contributors who have replenished their pension accounts amounted to over 6.5 million people. Of these, 66% replenish accounts 9-12 times a year, 22% 1-5 times a year, 12% 6-8 times a year.
In general, the accumulative pension system is a "mirror" of the economic situation and the development of the labor market in the country.
It also provides information on the ongoing work to reduce commissions and optimize the UAPF's expenses. The size of UAPF commissions is determined annually by the Board of the National Bank. For 2020, the size of the commission was significantly reduced from 5% to 2% of investment income and from 0.015% to 0.011% per month from pension assets. In recent years, the UAPF's expenses have been reduced by more than KZT 1 bln due to staff reduction (more than 25%), optimization and automation of business processes, digitalization of services. This work will be actively continued in 2020. Also, the UAPF made proposals for the legislative regulation of commission issues, taking into account international practice. When implemented, the income and expenses of the UAPF will significantly decrease in the interests of contributors.
Nurzhan Nurgazin, Deputy Director of the Monetary Operations Department of the National Bank, presented information on investment income on pension assets for the first half of 2020. Since the beginning of the year (including June), the total investment income of contributors has amounted to about KZT 566 bln, of which 66% (KZT 390 bln) - in the form of remuneration on financial instruments.
Over the past period since the completion of the consolidation of all pension assets in the UAPF (April 2014), pension assets increased from KZT 4.0 trln to KZT11.8 trln, the foreign exchange share of pension assets increased from 17.4% to 33.0%, the share of foreign assets increased from 6.1% to 23.1%.
Since about a third of the assets consist of investments in foreign currencies (mainly in US dollars), significant foreign exchange gains were generated in March 2020. Despite the subsequent decline in revenues in April and May due to the strengthening of the tenge, a stable positive yield has been provided since the beginning of 2020. It was emphasized that pension assets are “long” investments, and the results of management are assessed for at least three years of work, as is done in developed countries.
Emphasizing the real positive return on pension assets, Nurgazin noted that for the first half of 2020, the yield was 4.97% with inflation of 4.20%, and remains positive. Over the six years from 2014, the cumulative return was 78% with the accumulated inflation of 64%, thus the yield exceeds inflation by 14%.
Zhanat Kurmanov, Chairman of the Executive Board of UAPF JSC, briefly commented on the issue of the voiced opinion to transfer all pension accumulations to bank deposits. He noted that pension funds and banks are different financial institutions. Placing pension assets only on deposits does not correspond to international practice. All over the world, pension funds have many more instruments for generating investment income, including deposits themselves. Depending on the management strategy, pension assets are invested in bonds and stocks on the stock market, financial instruments in different currencies, in securities of issuers from different sectors of the economy around the world. Diversification of investments ensures profitability and reliability. The profitability of commercial banks' deposits in developed economies is historically lower than the profitability of the securities market. Therefore, in the long term, investment efficiency in Kazakhstan should grow due to investments in the securities market, institutional formation of a competitive market for management companies. At the same time, pension assets of any country, as a rule, act as a source of funding for the domestic economy through the stock market.
Marina Akmaeva, Head of the Media Relations Department of the Public Relations Department of the UAPF, spoke about the information and explanatory work of the UAPF and the results of an independent sociological survey at the end of 2019. In 2019, the level of knowledge of the population about the accumulative pension system increased. The basic level of financial literacy was 63.4% (the previous figure for 2018 was 60.2%). The advanced level of financial literacy was 26.9% (25.3% in 2018).
In the course of a representative study, an analysis of communication channels with contributors was carried out. The main source of information about the accumulative pension system for the respondents is the UAPF official website (29%), the UAPF regional offices (23.8%), the ENPF mobile application (9.2%), the UAPF call center (4%). As a result, the number of Kazakhstanis who prefer to receive information directly from the UAPF is growing every year (66%).
At the end of the meeting, the members of the Public Council noted that, despite the instability in the markets, the National Bank reliably manages pension assets, the UAPF operates stably and transparently, the employees of the UAPF ensure the availability of contributors to information on pension accumulations in the 24/7 mode and the quality of pension services that help maintain confidence in the fund and the pension system.
The next meeting of the Public Council is scheduled for the end of July 2020.
