It’s not easy to understand how the Social Fund of the Kyrgyz Republic calculates the amount of pension.
According to the National Statistical Committee, Kyrgyzstan has around 673 thousand pensioners of various categories. Almost every fourth of them has a pension that is below the living wage; in 2017 the living wage was estimated at 4,900 soms.
In Kyrgyzstan, the law “On national pension social insurance” provides that the state pension age is 63 for men and 58 for women. The old-age pension is payable to all persons regardless of whether they paid insurance contributions to the Social Fund or not. According to the National Statistical Committee, old-age pensioners in the Kyrgyz Republic account for 73 per cent of the total number of pensioners.
The amount of pension depends on the current well-being of the population, which cannot be influenced by the pensioners.
The pension amount is composed of the total employment, average wage and the amount of savings on the payer’s insurance accounts. The total amount of pension is the amount of basic and insurance portions of pension. Every citizen will receive the basic pension when they reach the pension age. Basic pension is guaranteed by the state and its amount depends on the total employment of a pensioner.
A man will receive the basic pension in full if his total employment is 25 years, whereas it’s 20 years for women. From October 1, 2017, the basic pension is 1,780 soms. If a person has worked less than the stated period, the basic pension will be cut proportionate to the years of employment. For example, the basic pension of a retired woman who has worked for 10 years instead of required 20 years will be 890 instead of 1,780 soms.
According to the law “On national pension social insurance of the Kyrgyz Republic”, the amount of pension is calculated by the following formula:
Total monthly pension (OP) = B (basic pension) + SP1 + SP2
SP1 – first insurance portion of pension or monthly amount of the insurance portion before personified accounting was introduced;
SP2 – second insurance portion of pension or monthly amount of the insurance portion after personified accounting was introduced.
Personified accounting is a system of maintaining personal records about every citizen registered in the obligatory pension insurance system.
If the basic pension is easy to calculate, the calculation of SP1 and SP2 is much more complicated. They take into account the qualifying period, monthly average wage, amount of savings and indexation coefficient. The indexation coefficient is pegged to the food price changes and average wage in the country in previous year.
In 2016, the Social Fund launched the online calculator for citizens to independently calculate the amount of their future pension. The Social Fund warns that the calculation results are preliminary. If a citizen enters all his data correctly, the miscalculation rate diminishes.
If we rely on the calculator, a woman who worked for 10 years with an average monthly pay 14,000 soms, her pension will amount to about 3,200 soms, including 890 soms as basic pension, and the remaining amount as the insurance portion of pension. If the total employment is 20 years and the wage is 14,000 soms, both basic and insurance portions of her pension will increase. Her basic pension will be 1,780 soms, and the approximate amount of her pension will be 5,800 soms.
Men must have 25 years of total employment in order to receive the basic pension in full. Let’s turn to our contributions to the Social Fund. Every month every employee working under contract has 10 per cent of his wage deducted as pension contributions, 10 per cent as taxes to the district office of Tax service. The employer also pays contributions for their employee – 17.25 per cent of employee’s wage (15 per cent to the Pension Fund, 2 per cent to the Compulsory Medical Insurance Fund, 0.25 per cent to the Employee Health Care Fund). Thus, the Social Fund gets 25 per cent of every employee’s wage.
For example, a person’s wage is 15,000 soms. This amount is an average wage in Kyrgyzstan, according to the National Statistical Committee. In this case, total expenses of the employer amount to 21,712 soms. The employer allocates 18,518 soms as an employee’s wage and pays 10 per cent, or 1,851 soms to the Social Fund, and another 10 per cent (1,666 soms) of the remaining amount as an income tax to Tax Service, respectively. Also, the employer pays 3,194 soms individually to the Social Fund, which is 17.25 per cent of the employee’s wage the employer must pay at their expense to the state budget. Thus, the Social Fund gets 5,047 soms in average from every employee on a monthly basis.
The sums accumulated are distributed among all pensioners. In fact, the next generation funds the previous one, and the pension amount depends largely on the well-being of the current population, which cannot be influenced by pensioners.
It’s no secret that many employers try to avoid taxes and hire employees without contract, whereas high unemployment rates and lack of knowledge about labour rights lead to hidden salary in most cases. Today, there’s 1.2 registered employees per one pensioner. The International Labour Organisation (ILO) recommends to triple this number, otherwise the pension system goes out of balance and starts losing its stability. If the situation does not change, in 10-12 years the current pension protection model will not be able to cover all pensioners, and the state will be at risk of losing the opportunity to pay out guaranteed pensions to citizens.
Asel Sooronbaeva – CABAR.asia School of analytic journalism alumnus
This article was prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project implemented with the financial support of the Foreign Ministry of Norway.