During an expert meeting organized by IWPR’s Central Asia office, experts discussed the peculiarities of the pension systems of the countries of the region.
During the analytical discussion, experts in the field of social security from the four Central Asian countries, in addition to Turkmenistan, talked about how pension systems are structured in the countries of the region and about the main problems in this area. How well do Central Asian citizens know how their pensions are formed and how much they will receive when they retire? What is the pension burden in the countries of the region and how to solve the main problems in order to improve the standard of living of people of retirement age?
These and other questions were answered by Batjan Akmoldina, Chief Expert Analyst at the Center for Evaluation, Analysis and Research of Efficiency under the Supreme Audit Chamber of the Republic of Kazakhstan; Jamilya Toguzbaeva, Analyst at Dos Tek Group LLC and Expert in the field of pension reform legislation in Kyrgyzstan; Aziz Timurov, Economist Analyst and graduate of CABAR.asia Analytical School from Tajikistan and Sanjar Babaev, Economist Analyst from Uzbekistan.
Opening the meeting, moderator Lola Olimova, editor of IWPR Tajikistan, reported that Central Asia is one of the youngest regions of the world. The average age of the population here is 27.6 years, and average life expectancy is approximately 69 to 75 years. People of retirement age account for 8 to 12 percent of the total population. According to International Labor Organization standards, there should be three people working for every retiree, so it won’t be a burden on the state budget.
“If you look at the number and dynamics of the total population of the countries of the Central Asian region, the situation in the region is very good. That is, our young population prevails, and they can support pensioners. But how well do pensioners live in our countries? It seems that Kazakhstan is the most prosperous country for pensioners. Is it really so?” she asked.
Kazakhstan
Batjan Akmoldina said that the situation with pensions in the country, in general, not bad, but there are some regional peculiarities.
The overall situation is relatively good for the country, Akmoldina said, noting that for Kazakhstan’s 19 million total population, two million and three hundred people are pensioners. But the demographic imbalance still exists because the payroll is not evenly distributed. In the north of the country – more elderly population, and in the south, on the contrary, the demographic load comes more from children. But, as a whole, except for these regional aspects, there are no alarming trends so far, as the population of the country grows.
Kazakhstan has both solidary and funded pension systems, and there is also a basic pension, which allows citizens to pay minimum pensions if, for example, a person has not accumulated seniority.
The current retirement age in the country is 61 years for women and 63 years for men. The life expectancy of the population is growing, and, accordingly, it can put a burden on the budget, the pension funds and so on, she said. There have been attempts to equalize the retirement age between men and women and remove that backlash by raising women’s retirement every six months, but because of public outcry, as well as rising mortality rates during the 2020 pandemic among women, the process has so far been frozen for five years – until 2028, Akmoldina said.
“We still have the problem not of those in the solidarity system, that is, those who before 1998 had a substantial length of service, but those who under the funded system were supposed to save, but did not. That is, there is still a sector of non-official employment, where they do not contribute enough, or they do not contribute pension contributions on a regular basis. That is, they don’t contribute voluntarily and they don’t think about how much they’re going to get tomorrow when they retire. If they just hope that they will accumulate some assets, or hope for children and so on, then fine. But the other thing is that maybe in a few years the number of people who retire and, in doing so, get only the minimum pension and not the funded components because they haven’t saved up, then there might be some social tension, given that their income has fallen, for example. And, perhaps, it will cause discontent and, perhaps, then there will be talk about the introduction of solidary pension again, or increase the pension base, which for all goes on reaching retirement age,” – she said.
People born in the 1980s, who were 18 years old in 1998, may face this. And they most likely did not have any length of service, respectively, the remaining components they have not accumulated. They will, of course, receive a significantly lower pension than they do now, says the expert from Kazakhstan. This is one of the main risks, said Akmoldina.
Kyrgyzstan
Djamilya Toguzbaeva spoke about the situation in Kyrgyzstan. She reported that Kyrgyzstan has a mixed pension system. In 2010, the funded component was introduced, following the example of Kazakhstan and Russia. Today it is 10% of insurance premiums.
“I am for the funded system. We do not take out the co-funded part of the pension, the heirs do not have the right to withdraw it, it remains and is distributed to people who do not have the necessary length of service and size of pensions to accrue a pension. Unfortunately, as I see it, the basic amount of pension today is formed from the basic pension, which today is 3170 soms, (for clarity – it is about 36 USD). If, for example, the average pension in the republic now is $87.5, respectively $36 is the base. That is, if we see almost half of the pension is the base part, “- she said.
Citizens who retire must have a full length of service, 20 years for women and 25 for men. If they don’t have that length of service, they come out with a $36 base portion of the pension.
Of course, there is a problem, as there is for everyone, with the budget in distributing and increasing the pension. Right now, the government is considering a bill to take the burden off the pension fund through early pensions. These are pensions when a person does not have the required age, but has the length of service required by law, and if this length of service exceeds the required by law by 15 years, then the citizen has the right to retire three years earlier. There are preferential categories of citizens who have the right to retire 8 to 3 years earlier. Now we’re talking about removing all those early pensions, Toguzbaeva said.
“The good thing is that we are not going down the road of raising the retirement age. Because for our countries, where in principle there is no high employment of the population, a very high level of migration, unfortunately, of course, raising the retirement age is fraught with discontent among most of the population. Especially in Kyrgyzstan, where as we know we have a very active people, and if something is wrong, we all go out and we all resent it,” Toguzbaeva said.
Now the average retirement age for women in Kyrgyzstan is 58 and for men 63.
“So it’s good that we are not raising the retirement age, but we are removing early retirement now. The burden [on the budget] goes away and the second, now they will gradually increase the required length of service. That is, now, as such, there is no requirement for length of service, if you have worked at least a year, you will get this base part of the pension, in a reduced form, in proportion to the period worked, but you will still get something,” she said.
Now, the new bill talks about having a minimum of five years of service for retirement.
“And if you don’t have those five years, you’re going to go on welfare. Even if you have deductions, but you have four years of service, you won’t be able to retire either. The new bill proposes to gradually increase that length of service, and after 15 years they want to reach 20 years,” she said.
Toguzbaeva said she fears this could cause discontent among the country’s population.
“Because 20 years, as I looked, even I now work in a private company, and before that in public institutions, and there everything is more or less calm. But in private companies, unfortunately, first of all, everything goes past the labor code, employers give money in envelopes, salaries. So you don’t get the length of service. And to work for 20 years, required by the new plans of our republic, I think, will be able to only a few. That is, a large proportion of people will be forced to go on benefits. This confuses me a little,” said an expert from Kyrgyzstan.
Tajikistan
Aziz Timurov told about pensions in Tajikistan and paid special attention to pensions of migrant workers.
Although Tajikistan is a country with a high birth rate and a young nation, the time is not far off when the country will also pass into the so-called third demographic transition and start aging. Maybe in one or two generations. And then the country will also face the problem of pension provision for its citizens.
Timurov said that the country does not have accurate data and economists’ opinions on how the burden of pensions on working citizens differ. According to some data, from 2015 to 2014, the load per pensioner in Tajikistan was 2.2 people. Other experts believe that the situation is more positive, and that it is 3.5 officially registered, working taxpayers corresponds to one pensioner. This is a rather wide scale between 2.2 and 3.5. And there’s no telling how true that is.
Beginning in 2010, Tajikistan passed a new law on social security and pensions, the essence of it is that from 2010 to 2017, Tajikistan switched from a solidarity system to a funded system.
From 2017, everyone who retires will receive a pension under the funded system. From this period, not only the length of service will be taken into account, but also the amount of those contributions or investments that a citizen, an employer, or an employee himself pays into the accumulation fund. These are very large sums, but so far there is not a large mass of people who begin to receive such a pension, so it is not clear what effect this transition will have, said Timurov.
One of the disadvantages pointed out by the expert is the lack of communication between the authorities and the population and the “behind the scenes” nature of this reform. Studies show that most people in Tajikistan know nothing about this reform and they do not know what their pension should be and how it is calculated.
The good work of the pension system is hindered by the high level of the shadow economy and the small number of legal taxpayers, Timurov said.
“Let’s not forget that there is a high level of labor migration, even now, despite the military conflict, in the recipient country, Russia, it is high. From Tajikistan they go. Let’s say conditionally a million, maybe less – maybe more, is not involved in this process [in the formation of pensions],” the expert said.
There is an agreement, which exists in other countries of the region, between Tajikistan and Russia, to share pensions of labor income of migrants who work and earn in Russia, partly from the transfers of some of the funds they received, earned in Russia, in the donor country, to Tajikistan, Kyrgyzstan or other countries in the region. But no one can yet really say how this agreement works, he stressed.
“In 2021, the Russian government adopted it, but so far we don’t see any real, empirical data on how this mechanism works. That is, I haven’t heard anything, (perhaps there is such a thing), that a person, not a citizen of Russia, but of Tajikistan, would receive a pension from Russia, which he earned there,” Timurov said.
The strategy of most labor migrants from Tajikistan at the moment is to obtain Russian citizenship and receive a Russian pension in the future, he noted. Because no one knows about the migrant income transfer agreement.
“But we don’t know to what extent this will be implemented when the time comes, when the first cohort of people who will retire who are migrant workers at the moment,” he said.
But Tajik migrant workers also expect to receive pensions in Tajikistan, Timurov said. A survey of migrant workers’ pensions, which he participated in when he worked for the Free Market Center of Tajikistan, shows this
“Despite the fact that they know that Tajikistan has one of the lowest pensions in the post-Soviet space. Right now, at the moment, it’s $24 or $23. In a few days, on July 1, there will be a 20 percent increase in pensions. But it will be, for example, the basic pension was $230-something, now it will be $250. The basic pension is the pension that, regardless of your length of service, you get. It’s basically a poverty benefit, if you can call it that. It does not correspond to any even hygienic, medical, subsistence levels, not to mention the subsistence basket, which does not yet exist in Tajikistan,” he said.
According to him, most of them do not expect high pensions, but nevertheless, they expect to receive a Tajik pension even if they are Russian citizens or have dual citizenship. Because most migrant workers expect to return to Tajikistan and live here soon, whether it be at retirement or pre-retirement age, he notes.
“To summarize, I can say that the only need is the transition to a funded system. It, in terms of market economy, in terms of private and responsible behavior is more conditioned. But I am confused by the fact that there is little talk about it, not discussed at any level. The media writes about it, but not very often. And I think we will come to a point where we will just be quietly informed about it. And we will no longer have such opportunities to change something, that is how it often happens,” said Aziz Timurov.
Uzbekistan
Sanjar Babayev said that Uzbekistan has a solidarity pension system, when current workers form pensions.
The number of pensioners by age, disability, loss of breadwinner in the country is about 3.8 million people with a total workforce of about 19 million. But, according to expert, in reality 13 million people are working, and formally the sector is even less, because in reality a little more than 5.5 million people pay taxes.
On this basis, one of the main problems for the pension system of the country is the coefficient of employment per one pensioner. Because of the low level of formalization, if you take into account all workers, there are 3.5 people per one pensioner, and if you look who pays social tax, there are only 1.6 people.
Besides the burden on budget is made by privileged categories of citizens. According to Babaev, there is a very large list of beneficiaries in the country, the so-called. lists number 1, number 2, number 3.
“When I was dealing with pension cases, I printed out 200 pages of benefit lists, that’s not counting the military and special contingent,” he said.
The average pension as of January of this year was 1 million 100,000 soums, or $100, for an average wage of 2 million soums (about $200).
Uzbekistan also introduced a savings system, but in reality it was not very well managed.
Before President Shavkat Mirziyoyev came to power, the system was one of the least reformed, Babayev said. Much has been done recently to make the pension system more convenient and fair.
“What has been done? First, working pensioners began to accrue a 100% pension, made amnesties, so before the citizens quite picky incorrectly accrued pension was forced to return everything. Amnesty, all this was forgotten, raised the level of pensions to the minimum consumer expenditure, so that they were not less. Disabled people were made a lot easier. Electronization was done. And quite a lot of amenities. There is a lot less red tape since last year, everything is electronic, you don’t even have to run around. Many documents have been reduced. […] Now, in fact, the younger generation, who work in the formal sector, they can account for labor statistics electronically, all this is registered. They don’t have to run anywhere, they can see it all, how many people accrue and so on,” said Sanjar Babayev.
The country started legalizing self-employed citizens and migrant workers. The state met their needs by offering to pay a basic social insurance fee of $30 per year, and this will count towards their length of service.
High labor taxes for employers were reduced. Until last year, the Social Security tax was 25 percent; it was reduced to 12 percent. The shortfall in income from the state budget was covered through transfers. Nearly 70 types of occupations were added to the list of self-employed.
“We have a lot of channels to make retirees aware of their rights, how much they can get a pension if they’re unhappy, and there’s a tiered appeals system. It works pretty well. We have a pension fund, it’s not sitting still, it’s trying to do everything to make the paperwork easier and so on. But, of course, it will act within its powers, “- said the expert from Uzbekistan.
As for the pensions of migrant workers, Uzbekistan has signed an agreement with South Korea, and now under this agreement on pensions for migrants, this country accrues and transfers to Uzbekistan what they have guaranteed for those citizens who work in Korea, the expert said.
There are, of course, problems with other countries that have “a less civilized labor market, less formalized,” Babayev said, alluding to Russian Federation.
“Uzbekistan started negotiations with them, and from 2018 intensified them, but these countries, themselves had financial problems and accumulate and give back hardly. We now see, of course, many, maybe they populist speeches of politicians from these countries. They actually want to confiscate even what they earn. And at the expense of our migrant workers to solve their internal problems. I don’t even know what it will look like. Well, our pension fund, and the government go to meet our migrants and somehow, for a token fee, enrolls,” he said.
Recommendations:
Sanjar Babayev believes that in order to improve the pension system instead of raising the retirement age, tightening, etc., as suggested by industry experts, the government should continue economic reforms that have begun to formalize employment, reform the economy, deregulation and improve the efficiency of government.
He cited calculations of how much money would be freed up with a small reduction in tax breaks, and into which industries that money could be directed.
“This reform will give a strong impetus to the development of the financial market and reduce inflation, because now the unformalized mass of money will be collected in the official new financial institutions. Most of that money supply will be formalized, and that will reduce inflationary pressures in our economy. And it will give huge political dividends for our government,” Babayev said.
Aziz Timurov believes that it is necessary to raise awareness of citizens about the pension system and improve communication of authorities about the pension reform.
He also proposes to improve those areas that are not directly related to the pension system, but, somehow, can improve the welfare of the population.
“This is the tax system, entrepreneurial sphere, business environment policy, improving the business environment, because the more opportunities to earn, the less they look into the mouth of the state. […] It will also develop traits such as entrepreneurialism, independence and diligence and the prospect of relying only on one’s own strength,” Timurov said.
Jamilya Toguzbayeva also believes it is necessary to improve and improve the overall level of the economy.
“…Until we raise the economy, until we increase the level of income of the population, of course, even if he will pay into the pension funds faithfully, regularly, to accumulate on a small payment of income large contributions and, accordingly, a large pension, you still can not. In order to make large contributions to the pension fund and form a decent pension you have to have a sufficient level of wages,” she said.
Financial literacy among the population should be improved, she said.
“In general, you cannot rely only on the state, and since school teach people that, yes, you need to save. I am in favor of pension contributions, but you can also teach children that you need to have some other source of income, because even if you get a pension, it is clear that its level will not allow you to live a decent life, “- she said.
The experts offered other recommendations. You can watch the full version of the expert meeting here: