Pension Assets Management and Temporary Fluctuations

Pension assets: how they are managed and why you shouldn't be afraid of temporary fluctuations

Since the start of the year, a lot of citizens of Kazakhstan have noticed that their pension accounts in the UAPF contain less money. Deputy Governor of the National Bank of the Republic of Kazakhstan Aliya Moldabekova told Zakon.kz about how pension savings are formed and invested, and why the amount in the account can sometimes shrink.

– Please tell us what is the reason behind contraction of funds in pension accounts and should people of Kazakhstan worry about this?

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Since the beginning of 2025 depositors indeed could notice a decrease in the amount in their pension accounts. According to results of the first four months of this year, investment yield was (-) 1.05%, and the total negative revaluation made 231.5 billion KZT.

I will say right away: this is connected with revaluation of the market value of assets in the portfolio. Therefore, there is no reason to worry, because in April a positive investment result of (+) 215 billion KZT was recorded, which significantly compensated for the losses since the start of the year.

– What caused such "minus"? Why did assets suddenly become cheaper?

– There are two key reasons for temporary decrease in profitability. The first is growth of yields on government securities of Kazakhstan. When the yield grows, the market price of bonds decreases. This is due to inflationary expectations and an increased supply of these securities by the Ministry of Finance due to the need to raise funds to cover the deficit of the republican budget.

The second reason is appreciation of the KZT against the USD from 525.11 to 512.34 KZT per dollar. This reduced the estimated value, in KZT terms, of foreign currency assets, which account for nearly 40% of the entire portfolio.

It is important to emphasize that we are talking about a paper, unrealized loss. That is, this is the result of revaluation, and not an actual loss. When the market value of assets is restored and the exchange rate changes, these losses will be offset by relevant income.

– So this is not a disaster and not a reason to panic?

– Absolutely correct. Pension assets are long-term investments, and their short-term fluctuations are inevitable. It is necessary to truly evaluate effectiveness of management on a one-year horizon and on a longer basis.

For example, for the past 12 months, from May 2024 to April 2025, the pension portfolio yield was 13.35% with inflation at 10.7%. That is, the real income is positive, and the pension savings of people in Kazakhstan continue their growth.

In general, since consolidation of pension assets in the UAPF, which was completed in April 2014, the accumulated yield was 180.2%, while the accumulated inflation for this period made 156%. This means that pension savings of the people of Kazakhstan steadily increase in real terms.

The National Bank constantly monitors and manages risks. We promptly respond to emerging circumstances, based on feasibility, market situation, available opportunities and other factors. All this is done to the benefit of depositors.

– How much pension assets have accumulated in the UAPF in total and what is happening with them at the moment?

– As of today, 22.6 trillion KZT have been accumulated in the UAPF. These are funds of the people of Kazakhstan that are received by the fund in the form of mandatory, voluntary and professional pension contributions. All of them are managed strictly in line with the laws of our country.

It is important to understand that pension savings do not lie idle. As in most countries, they are invested to preserve and increase savings.

Asset management is carried out by the National Bank and private management companies. Our investment strategy focuses on stable income at an acceptable level of risk. This means that pension assets are placed both within the country and on international markets.

– And what is the picture in numbers?

– The portfolio structure is diversified by currency: 60% of assets are in KZT, and 40% are in foreign currency. This allows us to balance profitability and mitigate currency risks.

We invest in bonds, shares, deposits and other financial assets of both domestic and foreign issuers.

Speaking of numbers, by the end of 2024, the investment portfolio yield was 17.84% with an inflation rate of 8.6%. Thus, investors received a high positive real income. Total investment income for the year was 3.4 trillion KZT.

I would like to point out that the UAPF publishes detailed reports every month on its official website, the portfolio structure and investment results are open to everyone.

– Recently, money of investors has been actively invested in the Kazakh quasi-public sector. Many believe that this is not the most reliable investment tool. Is there a risk that it will turn out that the money is used to support the economy, rather than generate real income?

– This issue indeed regularly appears on the public agenda. And this is understandable, people want to be sure that their savings work to their benefit. It is important to clarify that investing in financial instruments of Kazakhstan’s issuers is an established practice that meets interests of both the investors and the economy as a whole.

Funds of the UAPF are regularly invested in bonds of reliable Kazakhstan’s issuers, such as NMH Baiterek JSC and NWF Samruk-Kazyna JSC. They have high credit ratings, comparable to the rating of the state itself.

In turn, these issuers use funds received to finance important investment projects in energy, transport, public utilities, the agro-industrial complex and other strategically important sectors of the economy.

It is important that these investments are carried out only subject to market terms, on a repayable and reimbursable basis, given the required profitability and risks. This means that pension assets work as full-fledged investor capital, and not as means of direct financing.

– And do investors benefit from this?

– Of course, this approach allows us to ensure stable market returns for investors and support socially and economically significant projects within the country. Money of the people of Kazakhstan must first and foremost work in Kazakhstan, for development of our economy, infrastructure and, in general, for establishment of a foundation for improvement of the well-being of the population.

Along with that, I would like to indicate that the National Bank strictly separates interests of issuers and investors. All investment decisions are made only taking into account interests of investors.

– Given how many questions people have about managing pension money, will there be any changes in approaches? Maybe there will be more options to choose from?

– Yes, we indeed plan a number of measures. They are designed to enhance long-term sustainability and adequacy of the level of future payments. One of the key performance indicators is income replacement ratio, that is, to what extent a pension can cover a person's usual expenses after retirement. In order for the indicator to be decent, it is important to achieve real returns that exceed inflation.

– And what exactly will change?

– Firstly, we will continue to maintain currency diversification. 40% of assets will remain in foreign currency. Secondly, it is planned to change the structure of the foreign currency part of the portfolio in favor of more profitable asset classes, such as shares and alternative instruments, for example, real estate funds, private capital, hedge funds. Alternative instruments are broadly used by sovereign wealth funds worldwide and have already been used in Kazakhstan in management of gold and foreign exchange reserves since 2015 and by the National Fund since 2023.

Thirdly, efforts will be continued to develop the institution of private management companies: today, investors can transfer up to 50% of their pension savings to them for management. Yes, for now, volumes of private companies are small compared to the National Bank, because they began to form their portfolios relatively recently. But this is what makes them more mobile, and therefore allows investors to receive higher returns on their portfolios. The main thing is that the people of Kazakhstan have the opportunity to choose an investment strategy and distribute approaches, and thereby increase efficiency of their pension portfolio.

Moreover, we pro-actively work to upgrade the regulatory framework and improve financial literacy of the population so that each investor can consciously and effectively use their right to choose an investment manager.

All these measures pursue a goal to make the pension system more sustainable and ensure a decent standard of living for future pensioners.

Source
:
Zakon.kz