Exploring the pension annuity

STEP 1: WHY IS A PENSION ANNUITY BENEFICIAL?
Over our working lives, each of us accumulates certain funds in our pension account. Together with the fund's investment income, this amount can add up to substantial capital, intended to provide its owner with a comfortable old age upon retirement.
But there is another scenario. I am talking about an alternative to the classic "pension from a savings fund" scheme — the pension annuity (PA), also known as "pension insurance". In essence, these are lifelong fixed periodic payments. A person receives such a pension not from a pension fund but from an insurance company. Moreover, by concluding a PA contract, you can start using your pension savings now and avoid their erosion by inflation, whereas contributions held in the UAPF remain unavailable to their owners until retirement age.
In other words, a PA is a guaranteed insurance product that protects its holder against investment risks, longevity risk (we know that the UAPF currently pays a pension only up to a certain age or until the funds in the account run out) and inflation.

STEP 2: ELIMINATE THE RISKS
It is worth noting that in pension insurance all risks are borne entirely by the life insurance company. The fixed-payment scheme relieves clients of the risk of high volatility or changes in investment income and of the risk of outliving their savings. Having concluded a pension annuity contract, you can manage your money — for example, by investing it in various financial instruments and earning investment income.

STEP 3: STUDY THE PARAMETERS
When concluding a pension annuity contract, the contributor transfers their savings, or part of them, from the UAPF to a life insurance company.
There are two mandatory conditions for taking out a pension annuity. First, age: from 55 years. Parliament is currently considering a bill that would make a number of amendments to the Law of the Republic of Kazakhstan "On Pension Provision in the Republic of Kazakhstan". If Parliament adopts the amendments to the legislation proposed by our Company, women will be able to take out a pension annuity at 50.
Second, a sufficient amount of savings in the pension account. For men, the sufficient amount is over 2.5 million tenge; for women, 2.9 million tenge.
Unfortunately, not everyone has such savings. That is why our company advocates expanding social rights in the purchase of pension annuities.
I believe that once the amendments are adopted, the pension annuity will become even more accessible to citizens. In addition, Kazakhstanis will be able to place their pension savings with several insurance companies by purchasing pension annuities, and to top up the amount needed to buy an annuity from other sources.

STEP 4: CHOOSE THE TYPE OF CONTRACT
There are two types of pension annuity contract: a lifetime annuity and a fixed-term pension annuity. The first is available to citizens who have reached 55 and have sufficient savings in their pension account. The fixed-term pension annuity is available to military personnel and officers of the internal affairs bodies, the penal correction system, the financial police and the state fire service who hold special ranks, as well as to persons aged fifty or over who have pension savings formed from voluntary occupational pension contributions.
The contract terms may specify a guaranteed period. "Guaranteed" means that, after the person's death, payments will continue for a certain period in favour of the person named when the contract was concluded.
The frequency of payments from the life insurance company is chosen by the person. A pension from an annuity company can be received monthly, quarterly, or as a lump sum for the whole year.

STEP 5: PENSION ANNUITY — PROS AND CONS
The main advantage of a pension annuity is that a pension from a life insurance company can be received for life, even if the client has used up the entire amount of their savings. A pension fund, by contrast, makes payments only until the accumulated amount is exhausted. In addition, if you take out a pension annuity before reaching retirement age, you will continue working and therefore keep making mandatory contributions to the pension fund.
Thus, upon retirement you will be able to receive payments from the following sources: annuity payments from the life insurance company, payments from the pension fund, and the state pension (if you have work experience before 1998).
As for the drawbacks, the main risk when switching to pension insurance may be carelessness in choosing a life insurance company. I have repeatedly advised everyone facing this choice to follow three simple steps. First, shortlist the most reliable companies based on the size of their assets and compliance with prudential standards. Then choose the most advantageous among them and, finally, the most convenient. By choosing large, stable companies offering reasonable benefits, you minimize your risks and secure a lifelong pension.