Pension reform in Kazakhstan raises questions

Kazakhstani government is on its way to launch a brand new pension system, promising to bring higher pensions for future retirees. But not everyone is entirely optimistic, Tengrinews reports. 

During the readings of the bill amending Kazakhstan's legislative acts regulating pension provision on June 24, the parliament faction of Ak Zhol political party expressed concerns over some of the novelties. 

Leader of the faction Azat Peruashev said that the reform would decrease state revenues because employers would be searching for ways to dodge new costs associated with 5% obligatory employer contributions introduced by the bill on top of the existing 10% pension contributions.

The 10% contributions are obligatory payments into pension savings accounts in Kazakhstan that constitute 10% of every person's official wages. They are paid by employers and are either deduced from the employees' wages or made at the expense of the employers, depending on the contracts. There are also additional 5% contributions for people working in hazardous conditions - they are in effect since last year. The new 5% pension contributions will also be calculated based on the size of the salaries, however, the payments will be made solely at the expense of employees and may not be shifted to the employees.

The MP predicted that the employees would not be happy about the new burden and many would try to avoid it by resorting to so-called “gray salaries” - paying salaries under the table and concealing the actual size of their employees wages.

“Wages will be officially cut, at least by those same five percent. Salaries will go into the shadows; they will be paid “in envelopes.” As a result, there will be a decrease in the individual income tax. The losses from reduction of the individual income tax, I think, will be even greater (then 5%). Therefore, there is a risk that the shortfall in the budget revenues will be more than 64 billion. If we see that there is a decline in the revenues, we will go back and review the law," Peruashev said.  

Currently, pensioners in Kazakhstan receive retirement payments that come from two sources: the government that provides the basic pension plus a bonus depending on the number of year the person held an official job, and the accumulated pension savings that come from the Single Pension Fund and are formed from the 10% pension contributions. The basic pension equals to a half of the minimum subsistence level and currently makes 10,682 tenge ($57).

With the new reform, the new compulsory payments will be made starting from 2017 and after 2018 pensioners will be getting their pensions from three sources - the two mentioned above and the new 5% contributions.

The Singe Pension Fund representatives disagreed with the MP. They are sure that businessmen will pay the mandatory pension contributions in good faith.

The employers have been paying the mandatory occupational pension contributions for the employees who work in difficult and dangerous conditions for the second year, so there is no reason to expect them to dodge the new pension contributions, they said. 

By Dinara Urazova, editing by Tatyana Kuzmina