Sardor Fayzullayev, a representative of the Pension Fund, explained how the proposed system would work, including state contributions for low-income savers and additional arrangements for higher-income workers.
Uzbekistan currently has a three-tier pension system. The first tier is the state pension administered by the Pension Fund. The second and third tiers cover funded pensions and private or corporate pension arrangements. The existing funded pension system operates through Xalq Banki.
The state and funded pension systems are separate. Under the state pension system, a person’s pension entitlement is built through social tax payments made by employers. Under the funded system, individuals accumulate savings from their own money, which then forms an additional pension entitlement.
“The money deposited into a funded pension account is the citizen’s property and can also be passed on as an inheritance,” Fayzullayev said.
State contributions proposed for low-income savers
The draft reform proposes a mechanism to encourage low-income citizens to voluntarily save for retirement. Under what is known internationally as a matching contribution scheme, the state would add a certain share of the amount saved by an individual.
For example, if a person earns UZS 1.5 million a month and puts 5% of their salary, or UZS 75,000, into a funded pension account, the state would add 50% of that amount, or UZS 37,500, under the proposed system.
The account would therefore receive a total of UZS 112,500 each month.
“The main goal is to encourage low-income citizens to save,” Fayzullayev said.
Keeping the money invested over a long period is expected to increase its value through investment returns and compound growth.
When could the money be withdrawn?
Although the money in a funded pension account would belong to the individual, the proposed system would not allow it to be withdrawn at any time or for any purpose.
The draft currently provides for limited cases in which savings could be accessed before retirement. These include using the money for a down payment on a mortgage or covering major expenses related to a serious illness or surgery.
