Inflation Threatens to Erode Pension Savings
Inflation Threatens to Erode Pension Savings
Raising the amount of money held in Kazakstan’s private pension funds will help temporarily secure people’s savings from inflation, but the next generation of pensioners will still face the risk of losing their money, say NBCentralAsia experts.
On June 5, Kazakstan’s labour and social defence minister, Guljan Karagusova, recommended an eightfold increase in the amount that private pension funds are required to hold to two billion tenge, about 16 million US dollars, in an effort to foster stability in the savings system.
The change would mean people having to save more than they currently do.
There are two parts to Kazakstan’s pension system – a state fund and separate private funds. The state collects compulsory pension deductions for payments to people who are currently on a pension. In the private sector, joint stock companies accumulate funds in individual accounts. People contribute a minimum of 10 per cent of their income but can put in more if they want.
NBCentralAsia observers say Karagusova’s proposal should secure the savings of people currently nearing retirement, but this is a temporary measure and future pensioners may still lose their savings to inflation.
Elubay Makhatov, an expert with the ministry of labour and welfare protection in the South Kazakstan region, says the economy is unstable and high inflation is devouring savings.
To secure pensions, the current mixed system of private savings and state contributions should stay as it is for the next 20-30 years, he suggests.
Annual inflation last year was 8.6 per cent last year.
NBCentralAsia observers say a 10 per cent contribution level is nowhere near enough to ensure a decent retirement. Makhatov believes the government should redistribute taxes to bring total contributions to 20 per cent of personal income.
Observer Yekaterina Chirova thinks Karagusova’s proposal is a good one as the minimum savings that pension funds are required to hold will help guarantee that they do not go bankrupt.
“It is the same as with banks – the larger they are, the more solid and reliable they will be,” she said.
Experts say the government should impose restrictions on funds that are not sufficiently inflation-proof.
“An independent commission has calculated that [real] inflation is actually 23 per cent annually,” said Chirova. “So any deposit that is earning less income than that is really making a loss, and there should be restrictions on funds that are not keeping up with inflation.”
(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)
On June 5, Kazakstan’s labour and social defence minister, Guljan Karagusova, recommended an eightfold increase in the amount that private pension funds are required to hold to two billion tenge, about 16 million US dollars, in an effort to foster stability in the savings system.
The change would mean people having to save more than they currently do.
There are two parts to Kazakstan’s pension system – a state fund and separate private funds. The state collects compulsory pension deductions for payments to people who are currently on a pension. In the private sector, joint stock companies accumulate funds in individual accounts. People contribute a minimum of 10 per cent of their income but can put in more if they want.
NBCentralAsia observers say Karagusova’s proposal should secure the savings of people currently nearing retirement, but this is a temporary measure and future pensioners may still lose their savings to inflation.
Elubay Makhatov, an expert with the ministry of labour and welfare protection in the South Kazakstan region, says the economy is unstable and high inflation is devouring savings.
To secure pensions, the current mixed system of private savings and state contributions should stay as it is for the next 20-30 years, he suggests.
Annual inflation last year was 8.6 per cent last year.
NBCentralAsia observers say a 10 per cent contribution level is nowhere near enough to ensure a decent retirement. Makhatov believes the government should redistribute taxes to bring total contributions to 20 per cent of personal income.
Observer Yekaterina Chirova thinks Karagusova’s proposal is a good one as the minimum savings that pension funds are required to hold will help guarantee that they do not go bankrupt.
“It is the same as with banks – the larger they are, the more solid and reliable they will be,” she said.
Experts say the government should impose restrictions on funds that are not sufficiently inflation-proof.
“An independent commission has calculated that [real] inflation is actually 23 per cent annually,” said Chirova. “So any deposit that is earning less income than that is really making a loss, and there should be restrictions on funds that are not keeping up with inflation.”
(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)
