What awaits the pension system of the Kyrgyz Republic and why you should save for your old age now?

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Ever since the Soviet Union, Kyrgyz Republic has had a system of solidarity pensions. This is when the working population supports pensioners. Before the collapse of the USSR, this system was viable. However, in today’s reality it no longer works. Here is why.

Since independence, according to the statistics of the International Labor Organization, three people have to work to support one pensioner in the republic. But in fact, the situation in Kyrgyz Republic is such that there is only one working person per one pensioner. This has led to the fact that the Social Fund currently receives subsidies from the government for the payment of pensions.

According to open data, according to the plan for 2020, subsidies for pensioners and people with disabilities from the state budget are estimated at 21 billion soms, and this figure is growing every year, according to forecasts, by 2022 it will be 23.6 billion soms. Funding from the budget over ten years (since 2012) has increased by 151.52%. The amount for our country is colossal.

At the January 26 meeting of the Jogorku Kenesh, the head of the Social Fund stated that if the State Tax Service closes the year 2022 with an undersupply, there is a real threat of failure of pensions in January and February 2023.

It is no secret that the budget is struggling to make ends meet. So, with the budget deficit closed in January (141 million soms), in March (869.2 million soms). As can be seen, the republican budget itself from time to time needs subsidies.

 Gradually, in 10 years at most, the Social Fund will not be able to pay pensions. The minimum, of course, will be 2-2.5 thousand. But we should not expect more. In this regard, in my opinion, the government has taken a very timely step — the development of a cumulative pension system.

Since 1996, in Kyrgyz Republic there has been a notional savings system. That is, the workers were deducted 8% from their salaries and conditionally credited to their account. But these savings existed only on paper, while in reality they were used to support the population of retirement age.

This went on until 2010, when legislative changes were passed that introduced a mandatory cumulative pension system. An individual account was opened for each employee in the Social Fund, where 2% of his or her salary was credited.

In fact, if a person earns 10 thousand soms, then 200 soms are added to his account every month. This money is accumulated, in addition, according to the idea, these funds were supposed to bring income. For this purpose, the State Accumulation Fund was created under the Social Fund.

The money was supposed to work for the citizens, but it didn’t work out. According to calculations, about 20 billion soms have accumulated in the accounts of the funded part of the pension in the State Fund, which are lying dead weight. The reason for such attitude to the pension resources is that for nine years the Social Fund can not choose a management company to make these funds work. The fact is that before the President did not sign the amendments to the Law of KR «On accumulative pension funds» on July 25 of this year, the funds could invest money of citizens only through management companies.

Previously, funded pension funds, could not manage the money that was collected from the population as pension savings, only through a management company. To do this, government had to announce a tender, choose 2-3 companies to which subsequently entrusted citizens money. Because they could exercise external control, but the money was in fact in government hands.

In my opinion, it is more fair, because in any case government is responsible for this money.

In order to independently manage the finances of the population, pension funds need to obtain a license for these operations from Gosfinnadzor. That is what the Kyrgyz Republic Non-Governmental Pension Fund is doing now. Also, the fund itself will be able to invest money on pension deposits, which will affect positively, first of all, the depositors.

The costs of management companies will be removed. Thus, the income of our depositors will be higher. Today the income guaranteed by the agreement is 8% per year, but in fact they get about 15%, and with the reduction of costs the income will be higher.

The fund achieves high returns by investing in securities, including government securities, as well as stocks and currencies.

Company which won the tender are prescribed by law where they can invest the money. In the future, it would also be good to be able to invest the resources of citizens in the domestic economy, in the real sector. The government is currently developing several such projects.

Another important change that was introduced into the Law «On Accumulative Pension Funds» concerns the organizational and legal form of pension funds. If earlier NPFs were non-commercial organizations, now they have been transformed into joint-stock companies. This should give an impulse to appearance of several funds at once in the republic. So far, there is only one private accumulative pension fund in Kyrgyz Republic.

Due to the fact that in Kyrgyz Republic accumulative pension funds were considered non-profit organizations, no one was interested in opening such funds. In addition, NPFs have a large authorized capital. And why should a business invest money if it will not get profit from it. That is why our government made changes according to which the NPFs became joint-stock companies in order to increase the number of pension funds. This will become an incentive for the emergence of non-state pension funds. In my opinion, 3-4 funds will be enough for our country.

Thanks to the emergence of private pension funds in the country, the system of voluntary accumulation of pensions will finally fully work.

Just imagine, there are 2.5 million able-bodied people in Kyrgyz Republic, of whom only 626,000 make contributions to the Social Fund. About 2 million do not pay anything to the state. When they reach retirement age, what will happen to them? As long as a person works, he has to set aside a certain percentage of his salary, and in the future he will receive a normal pension. I speak from the example of our depositors, today we have 5,000 of them, and 2,500 people already receive pensions of 5,000 soms to 35,000 soms. Whoever saved and saved up. The longer the period until retirement, the higher the payments will be. And the way we have it, when there are 2-3 years before retirement, only then people begin to think about it.

Saving for retirement on your own is a good idea. But what about the security of your hard-earned money? 

NPF «Kyrgyz Republic» has been operating in the country for 25 years, and during this time there was not a single court appeal, not even complaints against them. They fulfill their obligations to the depositors in a timely manner. On the other hand, in terms of accumulative pension funds in the Kyrgyz Republic the legislative base is well formed. The Gosfinnadzor controls their activity. Then they insure the income on deposits, as well as a reserve fund is created and, finally, the authorized capital of NPF is 40 million soms, this amount fully covers the savings of depositors.

It is up to each individual to entrust their money to professionals with many years of experience, or to keep their savings in a bank, or maybe even at home under their mattress. The important thing is that the people of Kyrgyz Republic, who today receive their salaries in envelopes and do not make contributions to the Social Fund, should finally think about their future, because it is bound to come. And what it will be depends, among other things, on ourselves.

Постановление от 4 мая 2021 года № 199 О проекте Закона Кыргызской Республики «Об утверждении отчета об исполнении бюджета Социального фонда Кыргызской Республики за 2020 год»

Отчет об исполнении бюджета Социального фонда Кыргызской Республики за 2020 год

Сведения  о количестве пенсионеров и размерах пенсии на 01.01.2020 года по данным Статистического отчета 94-СОЦ 

Заключение Комитета от 11 октября 2021 года о проекте Закона Кыргызской Республики «Об утверждении отчета об исполнении бюджета Фонда обязательного медицинского страхования при Правительстве Кыргызской Республики за 2020 год»

Автор: Elaman Kerimbekov