Single Pension Fund to attract private companies for assets management

 Kazakhstan’s Central Bank plans to attract private companies to manage the assets of the National Pension Fund, a Tengrinews.kz journalist reports, citing Kairat Kelimbetov, the Bank’s Governor, as saying at a press-conference May 19.

According to him, the companies will be focused on providing funds to the corporate sector.

Mr. Kelimbetov emphasized that the National Bank will retain some of the functions related to the assets management. “Starting from next year, part of the assets will be managed by private companies (…) to develop the People’s IPO Program and take part in IPOs run by various companies. The National Bank will be responsible for investing into government securities”, he said.

He also informed that the legislation on managing the National Pension Fund is undergoing some changes, notably the Governing Board, the body defining major “rules of the game” will be the same Board [headed by the country’s President] currently in charge of managing the National Oil Fund [accumulating windfall revenues from oil sales and intended as a cushion against external economic shocks]”.

Mr. Kelimbetov said before the privately-held pension funds were merged into the Single Pension Fund “everything was grim”. He reminded that since the launch of the Single Pension Fund the service fee for individuals had been reduced twofold. According to him, the merger enabled to avoid a large-scaled pension crisis. “The high commission fees were used to pay excessively high salaries and unjustifiably huge bonuses to the pension funds’ managers (…) 32 out of 38 companies the pension assets were invested into by private pension funds have gone bankrupt. What professionals worked there? The National Bank in partnership with KPMG analyzed the investments and had to write them off”, Mr. Kelimbetov said.

Mr. Kelimbetov emphasized that earlier the yield of the pension assets stood at 2.2%. “Last year, despite the fact that the National Bank only started managing the pension assets in May, the figure rose to 6.3%. This year we are expecting the figure to reach 6.8%, covering the inflation”, he said.

Kazakhstan’s President Nursultan Nazarbayev instructed the Government late January 2013 to merge all the pension funds into a single government-owned entity. The Single Pension Fund was launched in August 2013. The merger was complete late March 2014.

As of December 1, 2012 there were 11 pension funds operating in Kazakhstan, with combined savings standing at around $21 billion.

Before the decision on merging all the country’s private pension funds, the then PM Serik Akhmetov said that “the current service fee rates applied by the country’s pension funds have been reducing the people’s pension savings by 26%”.

“According to experts, within the average saving period, the applicable service fee rates have been slashing people’s savings by about 26%. It is an excessively high rate. Given all that, the decision to launch a single pension fund [to replace all the pension funds operating in Kazakhstan] was very reasonable on the part of the Government”, he said.

“This scheme of managing has brought about a number of problems … It’s obvious that private pension funds have failed to cover all working people with saving plans”, the PM admitted at that time.

According to him, only 5.6 million out of 8.4 million working people were covered with saving plans, with only 4 million people making pension deductions on a regular basis, which was less than half of working population.