The government of Kazakhstan is proposing to eliminate mandatory pension contributions (OPVR) for employers, which were introduced starting in 2024. From 2025, the rate will be set at 2.5% of the payroll fund. In exchange, entrepreneurs will be offered an increased VAT rate. Elena Bakhmutova, chair of the Council of the Association of Financiers of Kazakhstan, spoke to Forbes Kazakhstan about how the abandonment of OPVR will affect the pension system.
Elena Leonidovna, how reasonable are mandatory employer contributions within the framework of the conditional accumulation pension system?
— The so-called conditional accumulation system was adopted in 2015 and, in my opinion, does not address the issues of the pension system, which are fundamentally based on the evasion of mandatory pension contributions and poor administration of their enforcement. The current employment structure is such that a significant portion of the population is engaged in individual labor activities or is self-employed, lacking an employer. Typically, these categories of citizens do not have sufficient pension savings for various reasons. The introduction of mandatory contributions by responsible employers for their hired workers does not resolve the issue for self-employed individuals.
The conditional accumulation system implies that the payments made under OPVR are not the property of the contributors. Essentially, it is a redistribution of funds in a quasi-solidarity system, where upon reaching retirement age, one can expect a certain payout calculated according to a special formula. Individual entrepreneurs and self-employed individuals, lacking employers, do not pay OPVR and effectively have no right to receive funds from OPVR. The conditional accumulation system was not originally designed to solve the existing problems. In its current format, it is impractical and needs to be abolished. For businesses with hired workers, the cancellation of OPVR will reduce expenses.
There have been suggestions to adjust OPVR and make them the property of contributors. Why did this ultimately not happen?
— Indeed, there were proposals from experts, including myself, to reformulate the OPVR contributions, making them akin to mandatory contributions that are the property of the contributors. However, as I understood, the social block of the government did not agree with this position. Moreover, there were suggestions to use these contributions to create some sort of solidarity system based on the State Social Insurance Fund (GFSS). However, such a step has many negative aspects, including an increase in budgetary obligations in the future, which should definitely be avoided.
Will the refusal to pay OPVR affect the stability of the pension system?
— These contributions have no relation to the stability of the Unified National Pension Fund (ENPF). The fund's assets depend on the quality of its investment portfolio and investment results. The pension system has a direct accumulation nature. Therefore, the ENPF has no obligations to make any fixed payments. Contributors will receive exactly what they have accumulated.
Contributors are concerned with the principle of preserving pension assets and their real return based on the formula: inflation +2% minimum return. These conditions will be met if the fund’s assets are invested in reliable financial instruments. Therefore, the ENPF should not, in principle, experience a cash gap. Contributions are continuously flowing into the fund, and there are designated payouts with established long-term horizons.
What will happen to the already accumulated OPVR contributions if they are abandoned?
— From the moment the new Tax Code is adopted, likely from January 2026, employers will stop making OPVR payments. So far, no one has mentioned what will happen to the already accumulated amounts. The rules regarding OPVR have not been fully defined — spending of the accumulations was planned to occur after 2028. Frankly, it would be more appropriate to transfer this money to the budget since they do not belong to the contributors.
Returning to the self-employed and individual entrepreneurs, what should be done, besides raising the culture of contribution payments, to foster their growth?
— In my opinion, the administration of their contributions should be changed. I do not agree with the notion that platform employment is considered something akin to an "employer." This is merely a technical solution where buyers and sellers of goods and services meet. Attempting to recognize a platform as an "employer" and imposing additional responsibilities on it does not solve the problem. These platforms could assist in the payment of necessary taxes and social contributions, which would allow them to attract more participants.
Currently, within the framework of special tax regimes, tax payments from income are allowed at a simplified rate of 4%, of which 2% goes to the ENPF and 2% to the GFSS and the Social Medical Insurance Fund (FSMS).
Tell me, how can a rate of 2% replace mandatory pension contributions of 10%? Then we wonder why a significant number of contributors have low pension savings. People need to be constantly reminded that 10% of income is the minimum for future pension payments. Any attempts to optimize contributions today will only lead to poverty in old age.