The Republic of Kazakhstan is a trans-continental nation, lying across Central Asia and Eastern Europe, but with the vast majority of its territory located in the Central Asian region. With a landmass of more than 2.5 million sq. km, it is the ninth largest country in the world and the world’s largest landlocked country. Its capital city is Astana, a status it has held since 1997. The previous capital – and Kazakhstan’s largest city – is Almaty.
Kazakhstan today is a unitary state with a presidential regime. Its main source of income is in the oil and gas industries. Kakakhstan is among the top ten countries in the world in terms of hydrocarbon reserves. In the first nice months of 2011 Kazakhstan’s GDP amounted to $123.7bn, among a population of 16.6 million people. In terms of demographics, the senior citizens of the country represent only 10 percent of the country population, with the working population totaling 8.4 million people. The average monthly income is $621 (as of November 2011) and working men retire on average at 63 with women retiring at 58. The average life span is 68 years.
The GNPF Accumulating Pension Fund – originally ‘Gosudarstvenny Nakopitelny Pensionny Fond’ – was founded in 1997 when the government of the Republic of Kazakhstan announced a series of reforms to the state pension system. This was the cornerstone for a new pensions regime, which had the objective of establishing a new individualised and capitalised pension system that succeeded the old PAYG system.The system of pension funds that Kazakhstan adopted was that of the Chilean model: an accumulating, individualised and capitalised system. It is based on three pillars:
1. PAYG: the former Soviet Union heritage based upon the ‘solidarity of generations’ where the state budget is a source of pension distributions by means of taxes and other budgetary receipts. Under this regime, the amount of pension benefits depends upon the employment duration. Currently, this pillar covers those people who had been employed for at least six months prior to the beginning of January 1998.
2. Compulsory defined contributions accumulating pension plan (accounting for more than 99 percent of all accumulated pension assets as of the end of 2011). Here, pension contributions are fixed at 10 percent of the individuals’ gross monthly income and are paid by all employed citizens of Kazakhstan and foreign individuals who have established permanent residence in the country, to their individual accounts in one of the APF’s selected in the contributors’ discretion. Contributors have the right to transfer their savings from one accumulating pension fund (APF) to another twice a year, but all savings of each member must be kept in one APF at a time.
3. A voluntary accumulating pension plan, embracing voluntary and voluntary-occupational pension contributions. This pillar is less developed and requires more attention from the APFs and the government. It has the potential to be fiscally beneficial as it can incur additional tax and other incentives for the members of the scheme.
In addition, every retiree is entitled to a monthly ‘president’ pension which in 2011 amounted to 50 percent of the cost of living.
Nowadays, there are eleven APFs operating in Kazakhstan. GNPF is the only pension fund in the country fully owned by the state through the National Bank, but it operates on the same terms and conditions and follows the same regulation as other funds. GNPF thus operates fairly in the nation-wide market. In total by the end of 2011, the pension system in the country has accumulated approximately $17.9bn. The APFs in Kazakhstan can outsource pension assets management function or can obtain their own license to manage pension assets themselves. GNPF is one of the APFs that received such a license. Thus, the APFs manage the pension assets of their members and also manage their own assets and capital that are accounted for separately from the pension assets.
Pension assets are accumulated and accounted for on the basis of a ‘unit-linked plan’ – that is to say, the cash value of pension contributions varies according to the current net asset value of the underlying investment assets. This system affords protection and flexibility in investment and also the daily capitalisation of the returns on investment.
Starting from 2012, all APFs must maintains two investment portfolios when managing pension savings: a conservative portfolio and a moderate one. The pension assets held in the conservative portfolio can be invested into all financial instruments authorised by the regulating body except for the shares. The pension assets held in the moderate portfolio can be invested into all financial instruments authorised by the regulating body including the shares, but not more than 30 percent of the portfolio. The APF members have the right to choose in which portfolio they wish their savings to be held.
For their operations – the accumulation of pension savings and the management of pension assets – the APFs are entitled to receive monthly commission fees: one on accumulated pension assets to the amount of no more than 0.05 percent of the total pension savings accumulated in the fund, and another on returns on investments to no more than 15 percent. In addition, the APFs also receive a return on investments of their own assets. In this way APFs aggregate the funds to finance their operations.
GNPF and its role
GNPF was effectively the launch pad for the reform of the pensions system. As the first and only APF in the country, it accepted the first pension contribution. Shortly after the inauguration of GNPF, other private funds followed suit. When establishing GNPF, the government’s primary objective was to create a default state pension fund that would keep all pension contributions until every contributor in the country could sign an agreement for the provision of pensions with one of the private APFs. The plan was to close the state APF once all pension savings could be distributed among the private APFs.
As the years progressed, however, the substantial part of GNPF contributors, predominantly public workers with modest income, did not want to transfer their pension savings from the GNPF to another APF as they had grown trust in the state fund and appreciated the customer service provided by the fund along with the yield level. The government decided to keep GNPF in operation, but to privatise it. Today, the National Bank of the Republic of Kazakhstan, the only shareholder of GNPF, is actively looking for a strategic investor. This year, GNPF is celebrating its 15th anniversary. GNPF has demonstrated consistently high performance, and none more so that in the last three years. It is ranked second among other APFs, and holds a total of $3.2bn in assets under management – equivalent to just over 18 percent of the market share in pension assets. It services over 1.8 million members, or 22 percent of all members in the country.
In 2011 GNPF generated the largest net investment return on pension assets of $95.1m, representing 30 percent of the total net investment return generated by all Kazakhstan APFs combined. The net income of GNPF for the period is $14.6m, or 30 percent of the net income gained by all Kazakhstan APFs put together.