APPENDIX I: Key OECD Recommendations for Three-Pillar Pension System
The OECD model for pension systems ideally comprises three pillars:
The first pillar is the state-run public pension that is part of the social security system. In principle, it aims to provide a minimum income, is based on solidarity and is normally financed on a pay-as-you basis, without constitution of large reserves.
The second pillar is the supplementary pension provided collectively by firms or socio-professional groups. It aims to provide a deferred income in addition to the first, thus offering a sufficient rate of replacement of earned income. These pensions are usually funded.
The third pillar consists of all the savings put aside by an individual for his old age. These personal savings need to be distinguished from precautionary saving for a nearer future.
Moving to a multi-pillar arrangement responds to economic goals by: creating a mandatory pension that is invested in capital markets; increasing a country’s potential growth path owing to more efficient capital allocation; and increasing savings and investments. The introduction of a multi-pillar pension system is likely to increase the worker’s sense of individual responsibility about his future retirement.
APPENDIX II: Principles for the Regulation of Investments by Pension Funds
Prepared by Paula Perttunen (World Bank), who participated in the joint IMF-World Bank Financial Sector Assessment Program (FSAP) Update mission that visited Kazakhstan during the period February 11–25, 2004..
At end-2003, household deposits with Kazakhstani commercial banks amounted to 6½ percent of GDP. At end-2002, assets of private pension fund of the 8 EU accession countries averaged 3.15 percent of GDP, while the average for the 15 EU countries was 29.06. Specifically, it was 3.12 percent in the Czech Republic, 0.08 percent in Estonia, 2.79 percent in Hungary, 0.29 percent in Latvia, none in Lithuania, 4.39 percent in Poland, 0.70 percent in Slovakia, and 0.19 percent in Slovenia. (Source: Table 4 in Development of Non-Bank Financial Institutions and Capital Markets in European Union Accession Countries by Marie-Renée Bakker and Alexandra Gross, World Bank Working Paper No. 28, 2004, World Bank, Washington D.C.) At end-2001, assets of private pension funds amounted to 7.41 percent of GDP in Argentina, 13.16 percent in Brazil, 4.74 percent in Mexico, 6.54 percent in Spain, 2.30 percent in Turkey, and 75.0 percent in the United States. (Source: Table 12 in Non-Bank Financial Institutions and Capital Markets in Turkey, World Bank Country Study, April 2003, World Bank, Washington D.C.
Assuming that, in addition to directly US dollar–denominated instruments, 75 percent of domestic bonds denominated in tenge are linked to the dollar; and that 30 percent of state and non-state Kazakhstani Eurobonds and non-state domestic bonds; and that 50 percent of foreign bonds are held in short-term maturities, in addition to NBK notes and deposits.
The actuary uses mathematical and statistical techniques to solve problems relating to the evaluation and management of risk, especially in relation to financial instruments and the management of financial institutions such as insurance companies, pension, and benefit plans, provident funds or social insurance programs.
Currently, the Society of Kazakhstani Actuaries, which was established in 2001–02, has 50 members of whom 30 have an actuary license.
Regarding accounting standards, please note that the International Accounting Standards Board is currently working on developing two standards for the insurance industry, including life insurance. The standards have two parts. The first part will deal with the uncontroversial issues of disclosure, while the second part will deal with those issues that are contentious, including the issue of valuation of insurance and pension company assets and actuarial methods for calculating liabilities.
For further discussion on currency risk, see section on “Foreign Investments.”
Planned Investment Fund and Securitization Legislation.
Refer also to the discussion in section “Impact of Limited Domestic Investment Options.”