KAZAKHSTAN – Kazakhstan's central bank and government have met president Nursultan Nazarbayev's one-month deadline to consolidate the country's 10 private and one state-owned mandatory pension funds into a single entity, the ENPF.
According to a televised briefing by National Bank of Kazakhstan (NBK) chairman Grigory Marchenko, the NBK will manage the new fund – contrary to his earlier reservations concerning conflicts of interest with the bank's existing role as pensions regulator – while the government will be the legal owner.
The existing funds have been given three options: convert to management companies and bid to provide asset management services for the ENPF; focus entirely on the voluntary pension fund system, unaffected by the president's proposal; or sell off their securities and go into voluntary liquidation.
Irrespective of the funds' choice, the second pillar's 8.4m members will have their individual accounts and relevant data transferred to the ENPF.
Marchenko added that the voluntary third pillar would become more attractive to savers following the reinstatement of a 5% income tax exemption on contributions.
While the logistics have yet be fleshed out, deputy prime minister Kairat Kelimbetov stated earlier on the Kazakh government website that GNPF, the 100% state-owned mandatory fund, would form the nexus of the consolidation, with the ENPF located at its premises.
The current contribution rate to the second pillar, at 10% of gross wages, remains unchanged, as does the state guarantee – the compensation from the budget to individual accounts whose values fall below that of their contributions when adjusted for inflation.
The sub-inflation rate of return generated by many of the funds has made the state guarantee a significant cost to the budget and was one of the principal reasons behind the single fund.
Under the new system, the ENPF's investment strategy will be determined by an investment council comprising two members apiece from the government, NBK and the pensions market, and three independent directors.
This structure, according to Marchenko, will ensure state authorities have no majority on the council, and that the fund's assets are not diverted to funding budget deficits or state projects.
Nevertheless, the new fund will be able to invest in infrastructure projects that meet the council's criteria.
Mobilising pension assets into infrastructure, including their participation in the country's still underdeveloped public-private partnerships, has long been president Nazarbayev's objective.
The 11 funds had KZT3.1bn (€16.1bn) of assets as of the end of 2012, of which the bulk was invested in government securities (48%) and local corporate bonds (20%), according to NBK data.
The Kazakh authorities aim to have the new system in place by 1 July.
The proposed changes, which require amendments to 22 existing laws, do need to be passed by the legislature, where the president's Nur Otan party enjoys a large majority.