Kazakhstanis who transfer their pension savings to private asset managers will be able to select investment strategies based on their age and risk tolerance. Asset managers will be permitted to offer different investment portfolios, El.kz reports citing the Agency for Regulation and Development of the Financial Market.
How Pension Savings Management Will Change
Previously, each investment portfolio manager (IPM) was required to maintain a single, pooled investment portfolio for all contributors, regardless of their age. Under the new rules, asset management companies will be able to offer up to three investment options with different risk-return profiles.
The changes apply to pension savings that contributors transfer to private asset managers. The investment strategy may be selected based on the time remaining until retirement and the individual’s willingness to accept fluctuations in the value of their investments.
What Investment Strategies Will Be Available to Contributors?
Conservative portfolio
The conservative portfolio will be available to all contributors, regardless of age. Bonds will account for the majority of investments, and the asset manager’s performance will be assessed on an annual basis.
Moderate portfolio
The moderate portfolio will be available to contributors who are more than three years away from retirement. It will comprise a combination of equities and bonds. The asset manager’s performance will be evaluated over a three-year period.
Risk-oriented portfolio
The risk-oriented portfolio is intended for contributors who have more than 13 years remaining until retirement. Equities will account for the majority of investments. While they offer the potential for higher returns, their market value is subject to greater fluctuations. Performance will be assessed over a five-year period.
When Will an Asset Manager Be Required to Cover a Shortfall?
A benchmark comprising indices of Kazakhstani and international equities and bonds will be established for each portfolio. The asset manager’s investment performance will be measured against the relevant benchmark. If, at the end of the applicable assessment period, the portfolio’s performance falls below the prescribed minimum threshold, the asset management company will be required to cover the shortfall from its own capital.
For the conservative portfolio, the minimum return threshold will be set at 90% of the benchmark return. Investments denominated in foreign currencies will be capped at two-fifths of the portfolio.
For the moderate portfolio, the minimum threshold will be 85% of the benchmark return. Investments denominated in foreign currencies may account for up to 70% of the portfolio.
For the risk-oriented portfolio, the minimum return threshold will be 80% of the benchmark return. The same limit will apply to the maximum share of foreign-currency-denominated investments.
How to Switch Between Portfolios
Contributors will be able to allocate their pension savings among several asset managers or across different portfolios offered by the same company. A transfer between portfolios managed by the same asset manager will be permitted no more than once a year, upon submission of an application through the Unified Accumulative Pension Fund (UAPF) website.
If a contributor’s age no longer meets the eligibility criteria for the selected investment strategy, the UAPF will automatically transfer the funds to an appropriate portfolio managed by the same company. If the asset manager does not offer a suitable portfolio, the Fund will notify the contributor in advance. The contributor will then be able to select another asset management company or return the pension savings to the management of the National Bank of Kazakhstan.
The assets of each portfolio will be recorded in separate accounts held with a custodian bank. Asset managers will be held accountable for the performance of each portfolio separately, while the existing list of eligible investment instruments will remain unchanged.
When Will the Changes Take Effect?
An asset manager will be permitted to close a portfolio only after the relevant performance assessment period has ended and provided that contributors are given one year’s advance notice. The company must retain at least one active portfolio. Before closing a portfolio, it will be required to cover any shortfall against the minimum return threshold, should one arise.
Since September, contributors have been able to transfer up to 100% of their pension savings to private asset managers.
The resolution will enter into force ten calendar days after its first official publication. This commencement procedure is specified in the Agency’s announcement.
