Key risk sources during the payout phase of pensions.
\\n\\n
Dr. Pletser’s experience includes 30 years of working with the European Space Agency as a Senior Physicist/Engineer and coordinating their parabolic flight campaigns, and he is the Guinness World Record holder for the most number of aircraft flown (12) in parabolas, personally logging more than 7,300 parabolas.
\\n\\nSeeing the 5,000th book published makes us at the same time proud, happy, humble, and grateful. This is a great opportunity to stop and celebrate what we have done so far, but is also an opportunity to engage even more, grow, and succeed. It wouldn't be possible to get here without the synergy of team members’ hard work and authors and editors who devote time and their expertise into Open Access book publishing with us.
\\n\\nOver these years, we have gone from pioneering the scientific Open Access book publishing field to being the world’s largest Open Access book publisher. Nonetheless, our vision has remained the same: to meet the challenges of making relevant knowledge available to the worldwide community under the Open Access model.
\\n\\nWe are excited about the present, and we look forward to sharing many more successes in the future.
\\n\\nThank you all for being part of the journey. 5,000 times thank you!
\\n\\nNow with 5,000 titles available Open Access, which one will you read next?
\\n\\nRead, share and download for free: https://www.intechopen.com/books
\\n\\n\\n\\n
\\n"}]',published:!0,mainMedia:null},components:[{type:"htmlEditorComponent",content:'
Preparation of Space Experiments edited by international leading expert Dr. Vladimir Pletser, Director of Space Training Operations at Blue Abyss is the 5,000th Open Access book published by IntechOpen and our milestone publication!
\n\n"This book presents some of the current trends in space microgravity research. The eleven chapters introduce various facets of space research in physical sciences, human physiology and technology developed using the microgravity environment not only to improve our fundamental understanding in these domains but also to adapt this new knowledge for application on earth." says the editor. Listen what else Dr. Pletser has to say...
\n\n\n\nDr. Pletser’s experience includes 30 years of working with the European Space Agency as a Senior Physicist/Engineer and coordinating their parabolic flight campaigns, and he is the Guinness World Record holder for the most number of aircraft flown (12) in parabolas, personally logging more than 7,300 parabolas.
\n\nSeeing the 5,000th book published makes us at the same time proud, happy, humble, and grateful. This is a great opportunity to stop and celebrate what we have done so far, but is also an opportunity to engage even more, grow, and succeed. It wouldn't be possible to get here without the synergy of team members’ hard work and authors and editors who devote time and their expertise into Open Access book publishing with us.
\n\nOver these years, we have gone from pioneering the scientific Open Access book publishing field to being the world’s largest Open Access book publisher. Nonetheless, our vision has remained the same: to meet the challenges of making relevant knowledge available to the worldwide community under the Open Access model.
\n\nWe are excited about the present, and we look forward to sharing many more successes in the future.
\n\nThank you all for being part of the journey. 5,000 times thank you!
\n\nNow with 5,000 titles available Open Access, which one will you read next?
\n\nRead, share and download for free: https://www.intechopen.com/books
\n\n\n\n
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\r\n\tSatellite radar altimetry, with its global coverage and level of precision, has been a key technique for observing the ocean surface and many aspects of land surfaces over the last three decades. Together with Earth sciences, it has integrated the efforts of international researchers to demonstrate the techniques, missions, measurements, and satellite altimetry accuracy, including orbit determination and ocean circulation models. Satellite altimetry has revolutionized our understanding of the Earth’s sea-level shape and its change over time, monitoring the natural and human-induced water mass balance change, marine gravity computations, and high-resolution seafloor bathymetry reconstruction, plate tectonics, etc., thus providing significant impact for climate and environmental studies. For researchers in geodesy and geophysics, oceanography, and other space and earth sciences, satellite radar altimetry is critical for unifying the vertical height systems, regional and global geoid modelling, and monitoring the sea level rise impact but also the ice sheet melting and others. This book gives a state-of-the-art overview of the technology itself and recent developments, including the applied studies utilizing the altimeter data for ice sheet monitoring, vertical land motion estimating, bathymetric computations, and marine geoid modelling, but also Synthetic Aperture Radar altimetry, coastal altimetry tracking methods and new satellite missions (e.g., Sentinel-6).
",isbn:"978-1-80355-880-6",printIsbn:"978-1-80355-879-0",pdfIsbn:"978-1-80355-881-3",doi:null,price:0,priceEur:0,priceUsd:0,slug:null,numberOfPages:0,isOpenForSubmission:!0,isSalesforceBook:!1,isNomenclature:!1,hash:"b2b6e7b58333453ef7b73416d8fdfaf3",bookSignature:"Dr. Tomislav Bašić",publishedDate:null,coverURL:"https://cdn.intechopen.com/books/images_new/11842.jpg",keywords:"Satellite Altimetry Missions, Satellite Altimetry Technology, Altimeters Accuracy, Marine Gravity, Marine Geoid, Altimeter Derived Bathymetry, Sea Level Change, Tide Gauge Data, Altimetry Applications, Multi-System Geodetic Observations, Ice Sheet Monitoring, Altimetry for the Future",numberOfDownloads:null,numberOfWosCitations:0,numberOfCrossrefCitations:null,numberOfDimensionsCitations:null,numberOfTotalCitations:null,isAvailableForWebshopOrdering:!0,dateEndFirstStepPublish:"May 13th 2022",dateEndSecondStepPublish:"July 13th 2022",dateEndThirdStepPublish:"September 11th 2022",dateEndFourthStepPublish:"November 30th 2022",dateEndFifthStepPublish:"January 29th 2023",dateConfirmationOfParticipation:null,remainingDaysToSecondStep:"13 days",secondStepPassed:!1,areRegistrationsClosed:!1,currentStepOfPublishingProcess:2,editedByType:null,kuFlag:!1,biosketch:"One of the pioneering research projects realizations in satellite altimetry (1991/1992), guest editor of Special Issue “Satellite Altimetry: Technology and Application in Geodesy,” IAG member, author of the official grid-transformation and geoid model of the Republic of Croatia.",coeditorOneBiosketch:null,coeditorTwoBiosketch:null,coeditorThreeBiosketch:null,coeditorFourBiosketch:null,coeditorFiveBiosketch:null,editors:[{id:"343125",title:"Dr.",name:"Tomislav",middleName:null,surname:"Bašić",slug:"tomislav-basic",fullName:"Tomislav Bašić",profilePictureURL:"https://mts.intechopen.com/storage/users/343125/images/system/343125.jpg",biography:"Tomislav Bašić holds MSc degree in Surveying Engineering, earned at the University of Zagreb, Faculty of Geodesy, Croatia and PhD in Geodetic Science, earned at the Leibniz University of Hannover, Germany. 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From chapter submission and review to approval and revision, copyediting and design, until final publication, I work closely with authors and editors to ensure a simple and easy publishing process. I maintain constant and effective communication with authors, editors, and reviewers, which allows for a level of personal support that enables contributors to fully commit and concentrate on the chapters they are writing, editing, or reviewing. I assist authors in the preparation of their full chapter submissions and track important deadlines and ensure they are met. I help to coordinate internal processes such as linguistic review and monitor the technical aspects of the process. As an ASM I am also involved in the acquisition of editors. 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Empirical results show that longevity improvements are not homogeneous across all socioeconomic groups (see, e.g., [1, 2, 3, 4]). At the individual level, an obvious question is how to ensure all retirees have an adequate, secure, stable, and predictable lifelong income stream that will allow them to maintain a target standard of living for, however, long the individual lives. The answer to this question is not linear and depends on several factors such as the role of occupational/personal pensions, defined benefit (DB) or defined contribution (DC) nature, minimum income guarantees, social networks (e.g., family structure and interconnectedness, informal care networks), institutional and government regulations and interventions (e.g., on the design of the pension system architecture, on the mandatory or optional nature of contributions, on auto- enrolment, on labour income and pensions taxation), on individual preferences (e.g., regarding continuing to work after retirement, bequest, lifecycle planning), and family background and family shocks (e.g., inheritances, divorce) that prevent accumulation or accelerate decumulation, financial system development (e.g., the existence of efficient capital and insurance markets), or the risks involved in the generation of retirement income (e.g., investment, inflation, contribution, political, longevity, liquidity, behavioural). This also depends on general policy goals and constraints on fiscal policy, old-age poverty, tax neutrality over the life cycle, redistribution objectives, intergenerational fairness, or the political economy of an ageing society.
Planning for retirement requires workers to clearly understand their age-specific needs, vulnerabilities, and preferences at old age, which are certainly not the same during working life. The likelihood of experience disrupting life events such as experiencing changes in physical and mental health that anticipate retirement or generate some impairment, losing a partner that contributed to the households regular budget, caring for a spouse or other family members, changing housing, changing jobs and starting a new career at old age must be part of the retirement planning equation. Individuals must fully understand their financial goals, the expected income (and services) sources they anticipate in the accumulation and decumulating phases and be aware of the risks they are willing to take and the ones they want to insure, diversify, or hedge. Typical old-age financial needs include having a minimum guaranteed income stream that smoothens the transition from working life to retirement and protects from the eroding effect of inflation on the purchasing power of money, having an extra income to guarantee access to health-care and long-term care services (medicines, dental care, care at home, nursing home care), bequeathing (cash inheritance, housing wealth, grandchildren’s education, funeral expenses, donations), or paying for life style activities (e.g., travelling). To fund for longer lives, people will ultimately rely on a retirement wallet combining state, employer-based or personal pensions, social institutions, family, own savings (including housing wealth), continued labour income, and insurance sources, with weights determined by both personal and institutional circumstances [5, 6].
The role of funded individual retirement provisions has increased over recent decades, as a result of systemic reforms of public pension schemes (move from NDB schemes towards FDC schemes, introduction of private savings pillars, for example, in Sweden, Poland), the decreasing public generosity of public annuities as a result of fiscally driven public pension reforms (e.g., Portugal, Spain), policies encouraging voluntary supplementary saving and disbursement via life annuity (e.g., Australia and New Zealand), private schemes switching from existing FDB schemes to FDC, and the “Pension freedoms” reform introduced in the UK in April 2015 providing greater flexibility and choice over how to access their defined contribution (DC) pension pots [7, 8]. The way individuals chose to decumulate their assets is one of the most important decisions they will make as they approach and enter into retirement. The decumulation process involves in some cases a one-off decision, made at the time of retirement (e.g., when an individual uses his entire wealth to pay the single premium of a standard life annuity or of a longevity-linked life annuity), but quite often involves a sequence of ad-hoc or programmed decisions spanned throughout the whole retirement period (e.g., when individuals opt to manage their assets and follow some simple or more complex drawdown rules, or when they simply choose not to divest and continue to accumulate savings).
The decumulation strategy may include investment, inflation, longevity, and other biometric risk guarantees, but often requires the individual to decide upon how much to withdrawn periodically from the pension pot to live on, particularly when public or private pension scheme benefits are not enough to pay regular expenses, considering the remaining lifetime, and deciding on how to allocate the remaining funds during retirement [9]. Traditional disbursement product options include level (nominal or real) life annuity contracts, programmed drawdown schemes and lump sum payments, and several hybrid risk-sharing solutions like longevity-linked life annuities (see, e.g., [10, 11, 12]), modern Tontines [13], or a Tonnuity [14]. The different decumulation strategies aim to minimise longevity and investment risks while optimising against a given objective function (maximise consumption, maintain purchasing power of money, eliminate ruin chances, mitigating volatility in income streams, balance between guaranteed income sources and liquid assets, bequest).
For decades, ensuring pension scheme members have saved enough for their retirement was the main concern for employers and pension trustees. Yet, in recent years, there is also growing interest in the payout phase of pensions. This is explained by the fact that the nature of retirement is changing from a one-off decision to a gradual transition with more flexible combinations between continued labour income and pension benefits, by expanding retirement planning horizons due to longevity increases, by the lack of traditional financial instruments like level annuities, and by the number of available options at retirement which demand financial knowledge. Trustees and employers are expected to meet the challenge of preparing members for retirement and actively emphasise the members the advantages of getting financial advice from a suitably qualified adviser if necessary.
The search for the appropriate decumulation option for accumulated individual retirement savings has to take account of a number of particularities in individual preferences and enabling environment, including differences in preferences for annuities, income drawdowns of lump sum payments, including differences in preferences for consumption and bequest, spouses’, and dependants’ benefits, differences in the exposure to uninsurable risks/shocks that affect decumulation (divorce, death of a partner and effects on wealth level, composition, service access, financial crisis and effects on asset level/composition, health shocks, long-term care), differences in access to financial market institutions and knowledge about them, differences in socioeconomic characteristics, the utility effects of asset conservation, how individuals perceive and quantify their longevity risk exposure and the existence of an efficient and affordable longevity insurance market [15].
In this chapter, we discuss and empirically investigate the welfare enhancing characteristics of alternative annuities (e.g., participating longevity-linked life annuities) and programmed withdrawal decumulation strategies, including simple decision rule methods and actuarial methods. Maximising annuity income is one important issue for many DC scheme members. Providing an efficient risk pooling mechanism that addresses the (individual) uncertainty of death through the provision of a lifetime annuity is one of the main mechanisms pension schemes are considered to redistribute income in a welfare-enhancing manner. Without such an instrument, individuals risk outliving their accumulated (financial, housing, pension) wealth or leaving unintended bequests to his/her dependants. Traditional (fixed, inflation-indexed) life annuities are a key instrument in mandated Defined Benefit (DB) pension schemes, in financial (FDC) and non-financial Notional Defined Contribution (NDC) schemes and in private pensions provided by insurance companies.
Yet, contrary to standard Modigliani life-cycle model of savings and consumption prediction, the voluntary market purchase of retirement annuities is in most countries very limited and decreasing and the actual saving/dissaving behaviour after retirement is often at odds with economic theory [16]. Several demand side (e.g., perceived poor value-for-money, the existence of annuity alternatives, bequest motives, behavioural and informational limitations, uncertainty regarding retirement income, shocks that prevent accumulation (e.g., unemployment spells and scarring effects1), precautionary behaviour to face major family shocks) and supply-side (e.g., the regulatory burden of annuity providers, with onerous capital requirements for unhedgeable risks (e.g., longevity risk) within Solvency II, nearly zero or negative interest rate environment and significant interest rate risk exposure and lack of solutions to hedge against (see, e.g., [18]), long-term financial risk, the cost of loss control and loss financing longevity risk management solutions, e.g., pension buy-ins, pension buy-outs, longevity bonds, longevity swaps, q-forwards, S-forwards, longevity options, limited reinsurance capacity to absorb massive exposure-to-risk and reduced risk appetite) arguments have been put forward to explain this “annuity puzzle”, i.e., to explain why the level of annuitization by individuals is much smaller than economic theory would suggest. This has increased the attention towards new contract structures involving financial and longevity risk sharing mechanisms between the annuity provider and annuitants, and increased recommendations towards the use of deferred annuities, that reduce the cost of guarantees and potentially augment their attractiveness to policyholders.
Common drawdown rules are typically derived from subjective judgements, rules of thumb and simple assumptions, for instance, concerning the duration of the payout phase. Simple drawdown rules like the 1/
Instead of using simple heuristic rules of thumb, an alternative approach to decumulation is to explicitly model consumers’ behaviour and objectives though an objective function based on utility theory or cumulative prospect theory. The objective function should account for preferences towards consumption level, habits and smoothness, time, bequest, investment and longevity risks, health status, and other characteristics. The value of the objective function is controlled by decision variables like the consumption rate or the asset allocation between alternative asset classes including annuity-type structures. Retirement income outcomes can be measured in many ways including absolute dollar amounts, income replacement rates, or as a comparison to benchmark living standards. Several different utility functions have been proposed in the academic literature to investigate decumulation strategies and the optimality of dynamic, integrated consumption, and investment decision problems. To compare the range of possible retirement outcomes from competing decumulation designs, we provide some numerical results on optimal consumption and investment strategies using Monte-Carlo simulation methods and a stochastic mortality and investment risk framework to model biometric and financial market risks. The remaining of this chapter is organised as follows. In Section 2, we analyse the pensioner’s retirement wallet portfolio composition. Section 3 highlights the key risk sources during the payout phase of pensions and the menu of decumulation options available at retirement. Section 4 explains the contact structure and valuation of innovative participating longevity-linked life annuity contracts. Section 5 empirically investigates the welfare enhancing characteristics of alternative pension decumulation strategies using Monte-Carlo simulation methods. Section 6 concludes.
The retirement wallet portfolio of pensioners potentially comprises public and private pensions (state, linked to an employment relationship or occupational, based on contracts between individuals and private pension or insurance life annuity providers), private savings (dividends, coupon payments, cash withdrawals), housing wealth, continued labour income, insurance, (narrow or extended) family, and social institutions (Figure 1).
Funding for longer lives: the retirement wallet. Source: Author’s elaboration based on [
Public pension schemes (DB, DC, funded, or unfunded) typically provide a basic retirement income, with different layers of pension generosity across countries depending on the pension system structure and economic and financial system development. Private pension plans financed through pension funds, pension insurance contracts, book reserves, and bank or investment companies managed funds are becoming more widespread, but there are still enormous differences in the coverage and significance of private pension provisions across jurisdictions even after accounting for the size of the population or domestic economy.2 However, most DC scheme members have not contributed enough to receive even a modest income stream in retirement. For the contrary, building up housing wealth through homeownership and mortgage repayment is by far the main way European households set aside for old age [19]. In the Euro area countries, the household’s wealth (excluding pension wealth) is primarily (82.2% of total assets) held in the form of real assets, the largest component being the household main residence (HMR), representing 60.2% of total real assets, with only 17.8% in the form of financial assets (Figure 2). In the EU, roughly 70% of Europeans live in owner-occupied accommodation, ownership is higher in poorer countries and the proportion of homeowners by age band has been steadily increasing with each successive generation. Empirical evidence also shows that homeowners are generally wealthier than their non-home owning counterparts, and this conclusion is valid across the income or net wealth distribution and across countries [20].
Decomposition of real assets by asset category, euro area. Source: Own composition based on household finance and consumption survey, 2nd wave [
If retirees wish to assume responsibility for their welfare needs at retirement, private pensions and private homeownership are the two main assets available to finance them. The two options involve long-term saving and investment decisions over the life cycle, both are motivated by potentially competing and conflicting objectives, but they tend to deliver different outcomes and options in the decumulation phase of pensions [6]. Home homeownership provides a stream of housing services starting at time of house acquisition and represents wealth which could be cashed in later in life, if needed. The asset serves both consumption and investment functions, which are assessed differently by households according to their personal preferences, for example, bequest motives. The main difficulty is currently managing and accessing housing wealth in an efficient way to supplement retirement income. In theory, there is a catalogue of Equity Release Mechanisms (ERS) available to individuals, including contract structures which allow individuals to sell and continue to live in their home (e.g., home reversion schemes), others that involve selling and moving (e.g., rent, downsizing, moving to a third-party home), and in situ mortgage ERS, for instance, reverse mortgages (Figure 3). Other design features include the time of equity release, the ownership of the property, or the amount of equity that can be potentially released.3
Typology of equity release mechanisms. Source: Own composition based on [
The family will continue to play an important role in the retirement wallet portfolio in most countries and regions, particularly in the form of services and care, although family support is likely to be less relevant in the future due to smaller family sizes, fewer children to provide care, changing family composition, higher children’s mobility, and increasing female labour market participation. Support from local/municipal social institutions (e.g., retirement communities) also has an important role in retirement, especially for low-income groups. Insurance mechanisms must play an increasing role in the retirement wallet portfolio of retirees since some of the most important risks individuals face during retirement (e.g., longevity risk, health-care risk, long-term care risk, investment risk, inflation risk) are insurable risks and traditional and innovative solutions have been developing to address them in a cost-efficient manner [15]. Contrary to traditional models of labour supply, empirical evidence suggests that the share of labour income from continued work after statutory retirement age is increasing and the trend is persistent.
The build-up, management, and decumulation of the retirement wallet portfolio are different between individuals and are not guaranteed to be optimal as predicted by the lifecycle hypothesis. This is because uncertainty regarding retirement income, the existence shocks that prevent accumulation (e.g., unemployment spells and scarring effects)4, precautionary saving preventing major family shocks (e.g., death of a spouse, divorce), uninsured future health care and long-term expenditures, intended bequests, behavioural and cultural biases, outdated social norms and psychological barriers, mental-accounting, the design and implementation of mandated earnings-related retirement schemes across countries including minimum income and service guarantees, pensions taxation regimes that penalise accumulating or decumulation, low risk appetite and financial literacy, and the heterogeneity in longevity by income levels [5, 16].
The decumulation or payout phase of pensions is the process of converting the retirement portfolio into a regular flow of income and services. Decumulation requires individuals to decide upon a retirement strategy, comprising a longevity insurance strategy determining the provisions taken by individuals to protect against longevity risk, that is, to guarantee they do not outlive their retirement portfolio, a withdrawal strategy, stipulating how much to withdraw from the retirement pot to finance regular consumption expenditures, an investment strategy determining how to maximise the portfolio’s return considering one’s risk profile5, and efficient and effective administration.
The key risk sources during decumulation include individual and aggregate longevity, investment, health, liquidity, inflation, retirement timing, bequest, annuitization, life shocks, taxation, political and regulatory interventions, market conduct, and credit risk (Table 1). Individuals can manage these risks through, for instance, intra-generational risk pooling mechanisms (e.g., insurance), inter-generational risk sharing vehicles (e.g., pension schemes), proper hedging instruments, risk mitigation and diversification strategies, default investment options, financial education, and effective regulation.
Risk | Definition |
---|---|
Individual longevity | Risk of outliving the retirement pot or experiencing a substantial reduction in retirement income |
Aggregate longevity | Risk that overall population lives longer than anticipated forcing, e.g., a reduction in public pension benefits |
Investment | The risk that portfolio investment performance mismatches the desired pattern of consumption in retirement |
Inflation | The risk that a generalised rise in prices erodes the purchasing power of pensions benefits and other retirement income |
Health/dependency | Risk that a deteriorating health condition significantly increases health-care o long-term care expenditures |
Liquidity | Risk arising from the lack of marketability of retirement assets |
Retirement timing risk | Uncertainty about when the scheme member will retire from labour market and/or begin to make withdrawals |
Bequest | Most parents have an altruistic approach to life and care about their closest relatives, and try to leave them the household’s main residence, cash, or her financial and real assets |
Annuitization | Mandatory annuitization may take place at a point where interest rates are lower than anticipated |
Political and regulatory | The risk that either public of private pension system providers may be forced to reduce their pension payments, because pension systems are financially unsustainable or as a result of a political decision and the risk that regulations change in an adverse way |
Taxes | Risk that a variation in the regulatory or tax environment will reduce the disposable retirement income, e.g., an increase in income tax rates or deductions, an increase in VAT taxes, an increase in capital market taxes |
Life events | Divorce, death of spouse/partner, etc |
Behavioural | Risk that pensioners behave in a way that is not considered to be rational, incapacity to make an ‘informed choice’ due to insufficient financial literacy and understanding of risks |
Market conduct and credit risk | The risk that financial and non-financial service providers act in a way that disadvantages retirees and credit risk referring to the events after which companies or individuals will be unable to make the required payments on their debt or contract obligations |
Typical retirement income goals include: (i) maximising the expected retirement income and consumption over one’s lifetime; (ii) consumption smoothing, (iii) generate a lifetime retirement income that cannot be outlived, (iv) preserving the ability to bequest unused wealth, (v) liquidity concerns in case of unforeseen expenses (e.g., long-term care), (vi) protecting against common financial and biometric risks (e.g., longevity, inflation, investment, life events, fraud), (vii) preserving the purchasing power of income, (viii) preserving the chance to profit from upward trends in financial markets, and (ix) keeping the investment strategy simple. The main options available for decumulating retirement assets accumulated in DC pension plans include lump sum payments, programmed or phased withdrawals, life annuities, and hybrid solutions.
The possibility of taking accumulated financial savings as a cash lump sum is typically dependent both on the contractual arrangements defined by the pension plan and the tax rules in force in a particular jurisdiction. Lump sum payments offer retirees full flexibility in the use of accumulated savings, including spending on leisure activities, passing on part of their retirement pot to children or other family members, investing in new or additional property, paying off a mortgage on a house or other debts, continuing to pursue an investment strategy, and the ability to “self-annuitize” at a time and on a basis that best suits their financial needs, but also embodies important shortcomings, particularly the lack of protection against (individual and aggregate) longevity risk, and against investment, credit, and inflation risks [7].
Programmed withdrawal arrangements allow retirees to cash in periodically from their retirement portfolio to cover necessary expenses, allowing individuals to preserve control and ownership over their assets, to decide upon the desired investment strategy, but do encompass biometrical risk-pooling that protects, for example, against longevity risk. The regular income flows may be the result of an explicit withdrawal rule or plan (e.g., the so-called 4% sustainable withdrawal rule, a fraction of the remaining life expectancy at the retirement age, possibly with lower and upper bounds, a constant amount) or simply be the result of discretionary actions.6
The fixed percentage, the constant (inflation-adjusted), and the floor-and-ceiling withdrawals rules were introduced by [29, 30]. The first spending rule considers fixed-percentage withdrawals (users spend a constant percentage of their assets in each year of retirement) and the second one considers an annual adjustment for inflation. The third method considers establishes a floor and a ceiling to cash withdrawals. According to [31, 32], this strategy allows greater spending when markets do well and spending reductions when markets do poorly. The target Percentage Adjustment rule was introduced in [33] and defines whether spending adjusts for inflation given a fixed-return assumption and a 45-year time horizon.
Programmed withdrawal has some advantages compared with annuity purchase (e.g., higher liquidity and flexibility to respond to unexpected consumption expenditures, retaining control over retirement assets, potentially higher pay-outs due to enhanced investment returns, possibility to allocate assets to inflation-linked investments, compatibility with the bequest motive, death benefit options), but also several drawbacks, particularly the lack of protection against longevity risk, no mortality cross subsidy, and significant exposure to investment risk [6].
The classical payout option for generating a predictable income stream in retirement is a life annuity. Annuity products offer protection against individual and aggregate longevity risk, a mortality cross subsidy from pooling risks but imply the loss of control over assets and no flexibility to address unexpected expenditures or the bequest motive. There are many types of annuities that can be differentiated, for instance, by the nature of payment, by the number of people covered, by the duration of payments, by the time that payouts commence, by the frequency of premium payments, by the distribution channel and types of options included, among other features (Figure 4). Recent developments in this area include participating longevity-linked life annuities in which annuitants share both investment and longevity risk but profit from risk-pooling [11, 12, 34], variable annuities7, modern Tontines [13], and Tonnuity [14].
Types of life annuities. Source: Author’s elaboration based on [
According to [35, 36, 37], a deferred annuity is suitable for risk-averse individuals, because it insures against increases in annuity prices and provides a smooth income. The group self-annuitization scheme (GSA) proposed by [39, 40] was analysed in [38] where pool participants are insured against individual longevity risk and share systematic mortality and longevity risks. They put forward that the GSA can outperform inflation-linked annuities when there are loadings. When individuals have a bequest motive, portfolios with phased withdrawals improve individuals’ welfare. Their results follow previous literature which suggests that individuals should not fully annuitize their wealth but hold an equity portfolio and match their consumption expenditures with regular cash withdrawals.
Contrary to standard life-cycle theory, the voluntary market purchase of retirement annuities is very limited and decreasing in most countries and the actual saving/dissaving behaviour after retirement is often at odds with economic theory [16]. A number of demand side (e.g., perceived poor value-for-money, the existence of annuity alternatives, bequest motives, behavioural and informational limitations) and supply-side (e.g., the regulatory burden of annuity providers) with onerous capital requirements for unhedgeable risks (e.g., longevity risk) within Solvency II, nearly zero interest rate environment and significant interest rate risk exposure, long-term financial risk, the cost of loss control and loss financing longevity risk management solutions, limited reinsurance capacity to absorb massive exposure-to-risk) arguments have been put forward to explain this “annuity puzzle”, that is, to explain why the level of annuitization by individuals is much smaller than economic theory would suggest [6, 41, 42]. Several index-type and indemnity-type mechanisms have been proposed in the literature to directly or indirectly share financial and longevity risks between annuity providers and individuals [10, 11, 43].
Participating longevity-linked life annuities (PLLAs) are life insurance contracts in which benefits are updated periodically based on the dynamics of both a longevity index, defined as the ratio between the expected survival probability and the survival rate observed in a reference population, and of an interest rate adjustment factor, defined as the ratio between observed and guaranteed financial returns [10, 11].8 In this section, we briefly describe the benefit structure and risk sharing design of immediate PLLAs. We then introduce the valuation setup via embedded longevity option decomposition.
Consider an index-type participating longevity-linked life annuity (PLLA) along the lines proposed by [11, 12]. Under this arrangement, the annuity benefit is periodically updated according to both the observed survival experience of a reference pool and the investment performance of the financial assets backing the contract. Without loss of generality, let us assume a single cohort product in which annuitants contribute equal amounts into the annuity fund and, in return, receive equal annuity benefit payments
where
with
denoting the k-year survival probability of some reference population cohort aged
where
If investment and mortality improvements are as expected, the arrangement resembles a classical nominal fixed life annuity. If
The valuation of a PLLA at time
with
where
In this section, we empirically investigate the welfare enhancing characteristics of alternative pension decumulation strategies. Specifically, we test eight alternative strategies tested:
A fixed withdrawal rule based on life expectancy observed at age in the retirement year
A fixed withdrawal rule based on the life annuity factor estimated at age in the retirement year
A withdrawal rule based on life expectancy observed at age
The “4%” SWR rule
Buying a PLLA at retirement age
Buying a classical single premium nominal life annuity (SPLA) at retirement age
Investing 80% of the initial wealth in the “4%” SWR rule and the remaining 20% in a ALDA
Buying an Inflation-Protected Annuity (IPA) at retirement age
The welfare analysis considers a time-separable utility function including lifetime consumption and bequest motives [44]. We assume individuals want to maximise the expected present value of utility derived from consumption through their remaining lifetime,
with
and
where
The utility function expresses the preferences of individuals by assigning higher values on favourable outcomes (higher consumption and bequest) while marking down poor outcomes such as a consistently lower level of retirement income. The utility function separately considers the risk aversion over consumption and bequest, allowing for subjective adjustments to how the individuals value different retirement outcomes. The dynamics of wealth is
where
To compare the performance of alternative decumulation strategies, we compute a utility score,
The valuation framework comprises a risk-neutral, frictionless and continuous financial market in which the annuity provider invests the insurance premium in a portfolio of dividend-paying stocks (30%) and coupon bonds (70%), and a risk-free interest rate. We assume the yield curve dynamics is well captured by a two-factor equilibrium model [45] and the stock market index follows a standard geometric Brownian motion diffusion process.
To account for the longevity risk premium in pricing the contracts, we compute cohort-specific risk-adjusted survival probabilities by using a risk-neutral simulation approach assuming the dynamics of mortality rates is well represented by the log bilinear Lee-Carter model under a Poisson setting, with time trend parameter modelled using a general ARIMA(p,d,q) model and risk neutral distribution of the innovations obtained using the Wang transform. The results are generated through 10,000 independent sample paths for both the survival probability of a cohort aged
Parameter | Value | Notes |
---|---|---|
Subjective utility discount factor: | 0.975 | |
Risk aversion coefficient: | 5 | |
Strength of bequest motive: | 0.83 | |
Bequests as luxury goods level: | 25.8 | ×103 USD |
Initial wealth (1000 s): | 210 | ×103 USD |
Tax rate: | 20% | |
ALDA deferment period: | 20 | years |
Pension benefits: | 0 | |
Life annuity loading | 10% | |
PLLA bounds | (80%; 120%) | |
Number of simulations | 1000 | |
Investment horizon | 35 | years |
Guaranteed annuity interest rate (GIR) | 1% | |
Minimum consumption level | 6 | ×103 USD |
Baseline parameters.
Source: Author’s elaboration.
Figure 5 plots the dynamics of consumption over time for the eight strategies tested. Except for level fixed SPIA annuities that payoff a constant nominal benefit for life, all other strategies experience some benefit volatility and different trends. Inflation-protected annuities guarantee constant real benefits, which means nominal steadily increase with inflation over time. The 4% SWR rule generates increasing consumption over time but only up to some point, when the portfolio value is exhausted and consumption levels must be reduced. When combined with the acquisition of an ALDA annuity, the 4% delivers increasing and sustainable consumption levels and longevity insurance. The dynamic life expectancy strategy generates consumption levels that cannot be sustained over time, quickly converging towards deprivation and personal bankruptcy. The PLLA structure with 20% maximum benefit volatility pays higher benefits compared with a classic SPIA annuity or self-annuitization strategies and offers longevity insurance for life, but at the expense of additional benefit volatility.
Dynamics of consumption level by decumulation strategy. Source: Author’s elaboration.
Figure 6 plots the wealth dynamics by decumulation strategy over a 35-year period. For strategies involving full annuitization, the remaining wealth is, by definition, zero since all assets are used to pay for the insurance premium. For the remaining, the dynamics of the asset portfolio depends on regular consumption levels and portfolio annual returns. We can observe that for all strategies the portfolio value reduces with time, in some cases until its complete exhaustion (e.g., 1/
Wealth dynamics by decumulation strategy. Source: Author’s elaboration.
We can observe also that the classical 4% SWR rule is not sustainable for long planning horizons, contrary to the conservative static life expectancy strategy 1/
Table 3 provides illustrative simulation-based welfare results for the decumulation strategies tested in this study in which individuals are exposed to market and longevity risk. The results include the mean consumption and wealth levels over the planning horizon and the asset balance at age 100, consumption volatility (standard deviation), expected utility computed using Eq. (7) and utility score values.9
Metric | Strategy | |||||||
---|---|---|---|---|---|---|---|---|
1/ex,0 | 1/axe,0 | 1/ex,t | 4% rule | PLLA | SPLA | 4% + ALDA | IPA | |
Mean | 9.38 | 8.77 | 6.98 | 9.06 | 12.53 | 10.90 | 14.57 | 22.24 |
Ct stdev | 2.43 | 4.13 | 7.19 | 8.23 | 1.30 | 0.00 | 6.80 | 11.92 |
Mean | 180,98 | 129.72 | 68.62 | 112.77 | 0.00 | 0.00 | 150.22 | 0.00 |
162.70 | 90.18 | 0.00 | 37.54 | 0.00 | 0.00 | 163.54 | 0.00 | |
−4.0 | −263,7 | −744.078 | −318.4 | −0.00012 | −0.00025 | −0.00071 | −0.00043 | |
11.29 | 11.78 | 9.29 | 10.47 | 13.69 | 11.45 | 8.82 | 9.99 |
Simulation-based welfare results: baseline scenario.
Source: Author’s elaboration. Notes: Market price of longevity risk set by
We can observe that the decumulation strategy involving purchasing a participating longevity-linked annuity at retirement age provides the highest utility score, that is, the highest (certain equivalent) constant level of income (considering the trade-off against residual benefit) which delivers an equivalent level of expected utility. The self-annuitization decumulation strategy comes second in terms of utility score, followed by classical SPIA annuity purchase. The good performance of the PLLA strategy is explained essentially by the higher consumption levels it delivers in early retirement years which are less discounted (actuarily and intertemporally) by individuals since, by construction, the strategy offers no utility from bequest. The strategy provides longevity risk insurance and relatively low consumption volatility when compared with most alternatives.
In this chapter, we review and discuss the main pension decumulation options by explicitly modelling consumers’ behaviour and objectives though an objective function based on utility theory accounting for consumption and bequest motives and different risk preferences. We conclude that purchasing a capped participating longevity-linked life annuity at retirement including embedded longevity and financial options that allow the annuity provider to periodically revise annuity payments if observed survivorship and portfolio outcomes deviate from expected (or guaranteed) values as contract initiation deliver superior welfare results when compared with classical annuitization and non-annuitization decumulation strategies. Contrary to standard fixed annuities in which the insurer bears all risk, PLLAs offer an efficient and transparent way of sharing biometric and financial market risks between annuity providers and policyholders. They are an interesting and promising product for the payout phase of pension schemes since the contract tackles some of the demand- and supply-side constraints that prevent individuals from annuitizing their retirement wealth and may contribute to help insurers writing new annuity policies. By linking the annuity benefit to the survival experience of a given underlying population and to the performance of the asset portfolio backing the contract PLLAs provide a direct mechanism to share financial and longevity risk and are an interesting alternative to manage systematic longevity risk in markets in which alternative risk management solutions (longevity-linked securities, reinsurance arrangements, capital allocation) are scarce and/or expensive.
Quality of higher education and training of highly qualified and employable graduates are the important prerequisites of sustainable social and economic development of society [1]. Training of graduates in line with international standards can positively impact population’s well-being in the long-term period. Nowadays, the HEIs must provide the high-quality student-centered learning and the ongoing adaptation of study programs and teaching methods to diverse expectations of labor market.
QA in higher education assumes, on the one hand, the process of creating conditions to promote the education quality, and, on the other hand, focus on an objective evaluation of the quality of learning outcomes and the professional competencies of students and graduates [2]. The education quality is one of the important components in the reproduction of the labor force, which contributes to the quality of the labor force and through it to the increase of the country’s social and economic growth. Currently, the quality of higher education is an important issue for Kazakhstan, as the country needs highly qualified personnel capable of adapting to the changing realities of the labor market and solving complex issues to ensure sustainable social and economic development of the country. Having joined the Bologna Process in 2010, Kazakhstan introduced reform of the quality assurance system aimed at further improvement of the education system, its quality, and efficiency. As a guideline, the Bologna Declaration standards [2] were chosen. In 2011, a new version of the Kazakhstan Law “On Education” was adopted [3]. It aimed at the creation of a national quality assurance system in Kazakhstan, development of an internal quality assurance system in the HEIs, increase of the capacity of national quality assurance agencies, establishment of a network of independent local quality assurance agencies, and provision for procedures of the HEIs’ accreditation. In 2012, the “Register 1″ of independent accreditation agencies was worked out.
However, at the moment, there’re no effective internal quality control systems in Kazakhstani HEIs [4]. There are no clearly defined internal standards to ensure the quality of education to evaluate the educational programs and the graduates’ training level [4]. The HEIs manage in accordance with outdated internal standards and quality assurance tools that aren’t adapted to modern conditions and national practices [4]. Normally, the quality assurance issues are limited to documentation and document workflow. The modern education system still encounters problems of centralized management [4]. The education reform came across with evident contradictions such as outdated laws and regulations governing the educational system. The new law “On Education” dated July 4, 2018, which is the so-called Law on the Autonomy of the Higher Educational Institutions provides innovations designed to resolve the contradictions between the efforts to reform education and the old management and the rules and regulations [5]. This paper analyzes the possibility and acceptability of the European best practices to be applied in Kazakhstani HEIs considering country’s local contexts and how educational reforms successful in European countries are effective in Kazakhstan. The paper provides an analysis of the QA systems of three European universities (University de Liege, Royal Institute of Technology KTH, University de Lorraine), visited in the framework of international project experts training on QA in higher education; national quality assurance system analysis of Kazakhstan, Belgium, France, and Sweden; and survey of internal QA system in three Kazakhstani universities (University of International Relations, National Agrarian University, and University of Economics, Finance and Trade). This research uses data from a survey of Kazakhstani students, faculty, and staff between March and April 2018 as one of the methods to assess the education quality. However, often the HEIs aren’t interested in an objective assessment of their effectiveness [1, 4]. In this regard, in order to get more objective assessment of the education quality, an additional survey was done to determine the more real picture of the University of International Relations graduates’ employability. Employability would be one of the indicators of the competitiveness and demand for graduates in the labor market and proof of the high quality of education in the HEI they have graduated. This research was also aimed at the identification of the nature of employment to analyze its gender aspects.
Now, there is a clear gap between the labor market, the market needs, and the education system. The labor market is managed by employers who dictate the labor force demand and specify the demand for HEI graduates on the labor market. In this regard, this research analyzes the actual situation with the employment of the University of International Relations graduates in order to assess how competitive our graduates are in the labor market and assess the quality of their training, conduct a gender analysis of the opportunities and conditions of graduates’ employment in the labor market, and analyze the role of the university-employer partnership to ensure the education quality and enhance the graduates’ employability.
Analysis of the internal QA system of Kazakhstani universities is based on a survey conducted with the staff of the Quality Assurance units and observation of three Kazakhstani universities, as well as on their self-evaluation reports provided to the accreditation commission. In all these universities, the author was engaged in the accreditation process either as an expert of the accreditation commission or as an employee who participated in the preparation of a self-evaluation report to be accredited. For the purpose of survey, the questionnaire was used to cover questions on the institutional QA, namely, whether there is a specific structure/unit in charge of the QA or major directions of the QA strategy. Is there a specific official document on a QA strategy or is it an integral part of the university’s overall strategy? Describe the QA mechanisms such as commissions, indicators, and assessment procedures. What are the internal and external stakeholders involved in the QA? Describe how they participate. Check the list to set the Standards and Guidelines for Quality Assurance in the European Higher Education Area (hereinafter ESG). Describe activities to confirm this standard implementation.
Analysis of the national and the institutional QA systems of European universities such as University de Liege (Belgium), Royal Institute of Technology KTH (Sweden), and University de Lorrain (France), which were visited under the international project training for QA experts in higher education, was done in terms of the possibilities and acceptability of application of the best European practices in Kazakhstani universities. Information provided at trainings by national QA agencies in Belgium, Agency for Quality Assurance in Higher Education (AEQES); in France, Commission des Titres d’Ingénieur (CTI) and High Council for the Evaluation of Research and Higher Education (HCERES); and in Sweden, The Swedish Higher Education Authority (UKÄ), was used in this paper.
One of the methods of internal evaluation of the University of International Relations effectiveness is monitoring and analysis of the quality of the educational services provided. In March–April 2018, the anonymous survey “Faculty Through the Eyes of Students” among the students and the questionnaire of faculty members “The social well-being of the academic staff” were conducted. Questionnaires “Faculty Through the Eyes of Students” had 10 questions regarding the faculty teaching competence in the following areas: the student-oriented approach, interaction with students including ethical behavior, the relevance of the material provided to students to the latest science achievements, the information relevance, and the use of innovative teaching methods and technologies. The students filled in 12,036 questionnaires about 404 faculty members, while the survey coverage was 90% of the entire teaching staff. According to the survey results, 96% of students were satisfied with the teaching quality. The average score was 4.8 points out of 5 possible. Thus, according to this internal assessment, the University of International Relations has a high education quality.
Under the questionnaire “The Social Wellbeing of the Faculty Members,” 413 questionnaires or 92% of the total staff were filled in by the faculty. A respondent might choose several answers from the set list of questions. A survey of respondents showed that 73% of the faculty members are satisfied with their work at the University of International Relations while 23% aren’t. 51% of them are in favor of improving the psychological climate, and 49% think that it is necessary to improve working conditions, reduce unnecessary paperwork, provide more time for scientific creative work, computerize all processes, increase the Internet speed, and improve automated processes. In general, based on the results of both surveys, the University of International Relations has a high grade of the faculty effectiveness and the entire educational process. However, just the opinions of students and faculty do not provide an objective assessment of the education quality. A more fundamental indicator of the University of International Relations effectiveness would be the graduates’ employability. “Employability is an aggregate of competencies, skills, understanding, and personal characteristics that provide graduates with career prospects that contribute to the development of the economy and society” [6]. A high indicator of the graduates’ employment proves the relevance of demand for graduates and their specialty. It would be a proof of recognition of the competences received and the education quality in this HEI.
Under this research, 1261 graduates of 2017 from 1323 of the University of International Relations were interviewed. Sixty-two graduates were foreign citizens and were not interviewed. To confirm data received under this survey, information was requested from the Interdepartmental Settlement Center for Social Payments (hereinafter Center for Social Payments) on the pension contributions made by our graduates. The 2017 database of graduates with information on respondents including passport data and the University of International Relations name was provided to the Center for Social Payments. It was done to track respondents in the tax base and to get data on their social payments. The social payments of a respondent would confirm his/her official paid employment.
Open questions with an open-ended choice of answers were used. The survey was done in the form of a telephone interview with pre-prepared questions in February to March 2018, that is, the 8th–9th months after the graduation.
In 2010, in an effort to integrate into the global educational space, Kazakhstan has signed the Bologna Process. Most Kazakhstani HEIs have signed the “Magna Carta of Universities,” which is the fundamental of the “Bologna Declaration.” The Lisbon Convention “On the recognition of qualifications on higher education in the European region” and the Sorbonne Declaration “On the harmonization of the architecture of the European higher education system” were signed, while the declaration “Zone of European higher education” was adopted. Having signed these documents, Kazakhstan demonstrated its will for democratization, improvement of the education quality, and the establishment of the autonomy of HEIs [7]. Kazakhstan has chosen to modernize the education system and comply with international standards. All the HEIs nationwide have transferred to a three-level system of education including the undergraduate, graduate, and doctoral (PhD.) The educational process was reorganized into a credit training system based on comparability with the ECTS credit transfer system. The HEIs all by themselves have started to develop and approve the procedure to transfer credits according to the ECTS type and regulate its application. “The Rules to organize the educational process under the credit technology” and “Classifier of specialties of higher and postgraduate education of the Republic Kazakhstan” with enlarged groups of specialties were approved nationwide [8].
A critical issue of modernization is the creation of a National QA system, which would not just control over the education quality but also the development of the system to ensure the quality of education. The ESG were applied as the basis for the QA system in Kazakhstan. Accreditation of the HEI and study programs is the external quality assurance mechanism. The national accreditation model is independent and voluntary. Accreditation shall be implemented by accreditation agencies included in the Register 1, which is the list of accreditation agencies in the field of education, which are the National Register of Accreditation Bodies of the Republic of Kazakhstan (hereinafter the RoK) Ministry of Education and Science. The RoK Ministry of Education and Science recognizes all European accreditation agencies listed in the European QA Register (EQAR). However, in order to be able to accredit Kazakhstani HEIs, they shall be registered in Kazakhstan and join the Register 1. Currently, 11 accreditation agencies are listed in Register 1, among them are 6 Kazakhstani organizations, Kazakhstan Agency for Quality Assurance in Education (IKAQAE), Independent Agency of Accreditation and Ratings (IAAR), Kazakhstan Association for Engineering Education (KAZSEE), Agency for Recognition and Quality Assurance in Education (ARQA), Eurasian Center for Accreditation and QA (ECAQA), and Independent Accreditation Center (IKAC), and 5 international ones—FIBAA (German), ASIIN (German), MusiQue (Belgium), ACQUIN (German), and ACBSP (USA).
Since 2017, national agencies IAAR and IKAQAE became the international ones and joined the European Association for the Quality Assurance in Higher Education (ENQA). In addition, they were listed in the European Register for Quality Assurance (EQAR) [9]. According to the report of the Center for the Bologna Process, the listing of Kazakhstani agencies into the European Register “demonstrated the recognition of procedures and processes at the European level the whole Kazakhstani education” [9]. The RoK National agencies accredit under the QA standards they have developed, in accordance with national education standards and the ESG. “Special standards analogous to the ESG in the field of the QA are not developed in Kazakhstan yet” [9]. Conceivably, the IAAR and the IKAQAE are the independent agencies and do not depend on public finance. However, the HEIs pay the agencies for accreditation and choose an accreditation agency by themselves. Eventually, these factors affect the assessment fairness, by taking into account the low level of quality culture. For example, the French High Council for Evaluation of Research and Higher Education (HCÉRES) is an independent national QA in higher education agency, which does not depend on state funding and of HEI. The HCÉRES is funded by the parliamentary vote.
Despite the fact that accreditation is voluntary for the HEIs, all of them are interested in it. First of all, the non-accredited HEIs shall not train the state-funded grantees. The status of an accredited university is critical for a HEI. Such status would confirm the compliance of a university and its educational programs with international standards. This status provides an HEI with a chance to be recognizable in Europe and to develop joint educational programs and academic mobility. However, the ambitions of Kazakhstani HEIs to be accredited shortly and the competition for being top in the ratings often resulted in an unreliable self-assessment reports and colored truth. But it is just the transparent, objective, reliable results of the internal assessment and audit of a HEI and the quality of its educational programs that are done by its staff at the institutional level could help to identify weaknesses and ways to address them. The accreditation procedure as such presupposes to pass a final verdict upon the completion of the assessment. The “F” would entail no access to many of the above benefits. It might be advisable to use the experience of the French agency HCÉRES and first provide Kazakhstani HEIs with an independent evaluation. Such an evaluation does not imply placing a HEI in the ranking, but is done in order to identify weaknesses and provide an opportunity to improve a HEI management.
One of the impediments to improve the education quality would be the nontransparent and inaccurate statistics. All the HEIs of the country on an ongoing basis upload their data to the ESU-VO, Unified Management System of Higher Education. This is a multilevel information system that includes all the HEIs, the RoK Ministry of Education and Science, and other government structures and agencies involved in the education development. Quite often, the data uploaded by universities in ESU-VO differ from those provided by them in self-assessment reports and from the real situation at a HEI. HEIs are not interested in creating a transparent statistical database. For example, data on the number of students and their socioeconomic status are overestimated, since the amount of funding from the Ministry of Education and Science depends on this. The decrease in the number of students, specifically the students from low-income families, as a result has a decrease in funding from the Ministry of Education and Science. Efforts by the Ministry of Education and Science to introduce the “Platonus” electronic system have not gained traction in numerous HEIs. Specifically, at the University of Liege, a statistic list has been created on the university’s website in the public domain. All the university’s statistics is placed there. This is the automated data processing. This list is ongoingly updated. Each university unit has access to a statistical database. The use of this French experience could reduce the time spent by employees of Kazakhstani HEIs to collect and process data to be provided to accountable bodies and make university statistics transparent.
The survey of Kazakhstani universities found that all the HEIs have the developed QA system (according to their responses) with a separate unit in charge, the QA policy, mechanisms, and procedures that comply with the European QA Framework and ESG. The QA procedures include surveys of students and employers. The major standards and parameters of the Bologna Process were proclaimed in Kazakhstan at the national and institutional levels as “adopted and implemented.” However, their real implementation is yet an issue. Challenges arise since the HEIs’ employees have no skills to develop educational programs which shall comply with the qualification framework and in the regulation and evaluation of the HEIs’ activities, and they have no responsibility for learning outcomes. Universities encounter the overcentralized management and outdated internal QA tools. The institutional QA systems are limited to a quality management system that complies with the ISO 9001. The academic integrity, rating methods, the teaching quality, and the development of a “culture of quality and trust” [4] remain problematic. The development of a quality culture implies that each unit and each staffer shall be responsible and aware of their involvement in the final result, namely, in the qualitative training of specialists, and participate in the continual improvement of the education quality.
Most HEIs in France, Belgium, and Sweden are public; however, all of them have academic and financial independence. Currently, higher education in Kazakhstan transits from the centralized administration by the RoK Ministry of Education and Science to the HEIs’ autonomy. Unfortunately, very often autonomy is considered by the HEIs barely as financial self-sufficiency and independent distribution of financial and material resources. In an effort to reduce the expenditure side of the university budget, the administration often downsizes the number of faculty and staff, increasing the workload of those remaining. In the HEIs, there is still a practice to finance in-service training of faculty on a residual basis. There are contradictions between the outdated methods of education management and efforts to modernize the education system. The reforms undertaken do not yet provide full academic and financial freedom to the HEIs. Reform of the higher education system and the will to provide greater autonomy to the HEIs are restrained by outdated laws and regulations in all areas of a HEI’s development. For example, the transition to credit training technologies implies for students the independent choice of subjects for study, that is, have freedom of choice. However, the strategy of public financing of the HEIs is still based on the state education standards and compulsory model curricula, which means no alternatives to choose [10]. This contradiction limits the academic autonomy of the HEIs. Overcentralization prevents the HEIs from consideration of local needs.
The HEIs’ right to develop a corporate governance designed to fulfill not only an advisory, but also a controlling role, and to ensure interrelation and consideration of the national interests, business, and society was limited to the creation of the regents of the universities and the supervisory board at a HEI, which do not have any legal force and exist just on paper. The lack of appropriate laws and regulations restrains the expansion of the HEIs’ autonomy. Most HEIs operate as national state-owned enterprises on the basis of the right of economic management. The law “On State Property” governing these HEIs conflicts with the main strategies to develop academic and financial independence [11, 4].
To further promote the HEIs’ autonomy, a new RoK Law “On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on the Expansion of the Academic and Administrative Independence of Higher Education Institutions” of July 4, 2018, was adopted, and over 70 regulatory legal acts were elaborated [5]. This law provides the state enterprises for possible transformation of the legal form into nonprofit joint-stock companies. Such transformation would be another step to autonomy, since the nonprofit form of organization makes it possible for HEIs to maintain corporate standards in management and ensure the efficient redistribution of income for its development. This law shall entitle the HEIs to legally pursue commercial activities. The reform also affected the methods to finance the HEIs and provides for the transition to credit financing without reference to the period of study [5]. The new law also provides the development of a new Classifier on the training areas. In accordance with this Classifier, the HEIs shall independently develop the new educational programs. The new Classifier will replace the old one with numerous specialties which have not been in demand in the labor market for a while [12].
The institutional autonomy is not a goal in itself. The main argument to expand the HEIs’ autonomy would be an effective QA system, which implies the HEIs’ institutional responsibility for the education quality and social responsibility for the population’s well-being in the end. “Autonomy shall be implemented under a national framework that balances institutional freedom with various social goals” [13, 14]. The HEIs’ overcommercialization, increased tuition fees, and the current methods of the RoK Ministry of Education and Science to distribute educational grants have resulted in limited access to education for the disadvantaged population. Educational grants are primarily awarded based on academic merit. School graduates from low-income families and applicants from rural areas, where poverty is 2.7 times higher than in the urban ones and the instruction level and material security of schools is lower than in the cities [15], were on a back foot. Granting autonomy to the HEIs would not mean taking away responsibility of the state to support them and the vulnerable groups. Given the low level of socioeconomic development of the country (compared to European countries), Kazakhstan needs the Government support for the HEIs at this stage of transition to academic and managerial independence.
In Europe, the transformation period in the education system to create the common education space and the labor market has more than 50 years. The national and domestic QA systems of the HEIs in France, Belgium, Romania, Sweden, and Bulgaria are guided by the ESG standards aimed at improving the education quality and developing a quality culture in higher education, bolstering the role of students and employers in the QA processes. The national QA agencies evaluate the HEIs’ activities and intend, per their recommendations provided, to promote them providing quality services and increase the graduates’ employability as the main indicator of the education quality. However, the policy to ensure the quality of each country has its own specifics, adapts to local terms, and considers the conditions for the development of the local labor market and the living standard of the population.
At the end of the last century, France and Belgium already had a developed quality assessment system. In the early 2000s, in order to ensure comparability of educational programs, create a common educational space, and promote student mobility, the European HEIs begin to transit to accreditation as the final stage of assessment to confirm that a HEI complies with the ESG standards. Currently, Belgium develops a new methodology for an external QA system. It focuses on support of HEIs and promotion of their quality approaches, the internal QA system, and strengthening autonomy and responsibility for the QA in a HEI and transfers from just a summative assessment to an effective formative assessment which involves monitoring in order to provide its results to the HEIs to improve teaching and learning.
All the analyzed European HEIs are independently responsible for the education quality while keeping their traditions and specifics that took years. The QA system of all European HEIs gives priority to their self-evaluation, assessment of learning outcomes, increased autonomy, and the level and nature of the graduates’ employment. For example, the University de Lorraine Quality Management Unit has been monitoring graduates for employment for several years. The survey key questions are set by the Ministry of Education, but the HEIs can freely add any questions of their interest. The statistics received under the survey are available on the universities’ website and used to evaluate their activities. They are also provided to the Ministry of Education to create a centralized database of all universities. At the national level, the survey results are processed, and databases are compiled at different levels, in different subjects, for each university, and at the national level.
The Swedish QA system under the requirements of the Bologna Process was formed with the already high-quality education in the country. The Swedish Higher Education Authority (UKÄ) is a state agency controlled by the State. The major focus of this agency is to ensure that the assessment conducted by the agency helps to improve the education quality at the university. Sweden has developed a new QA system implemented since 2017 and made up four separate assessments: an institutional assessment of the QA process, an assessment of educational programs, an assessment of degree applications, and thematic assessments. Thematic assessment would mean evaluation of the entire educational system, comparison of the achievements of the HEIs in areas important to the country, and ensuring quality in higher education by topics such as internationalization or gender equality. “Sustainable development in education” was determined for a thematic assessment in 2017. The Swedish QA system is characterized by ongoing monitoring and periodic evaluation of educational programs; a university has a close relationship with the business sector and with employers and is strongly orientated to the labor market. In Sweden, a government agency, working on labor market research, works effectively to determine the skills and competencies that will be in future demand in a country and regions.
The Swedish experience in the study of the labor market could be a good guide for Kazakhstani students when choosing subjects, for the HEIs and employers to develop educational programs, and for the Ministry of Education and Science to determine state education standards, working out strategies and programs for education development. The RoK Ministry of Labor and Social Protection of the Population in cooperation with the RoK Ministry of Education and Science forecast specialties that will be in demand on the labor market. According to the forecasts, a state educational order is formed. According to the latest forecast data, the most on-fire specialties are the industrial and the technical ones [16]. However, there is practically no more national industrial sector, and therefore there will be no demand for graduates in these subjects in the labor market. The Soviet experience of the development of vocational education which had strong relationship with the industrial sector was completely ignored since there is no industrial sector anymore. Since applicants are not interested to enroll on these specialties, it would be advisable to provide them with incentives to stimulate their choice of specialties strategically important for the country’s future.
The European HEIs are financially independent, yet the state provides them with financial support. According to the latest available data from UNESCO, in 2015 government expenditures on education in Kazakhstan amounted to 2.79% of GDP, which is way below than in European countries (Figure 1). Herewith, in Kazakhstan the share of expenditures on tertiary in total expenditures on education is lower (Figure 1). Likewise, the share of expenditures on tertiary in total expenditures for education in Kazakhstan tends to decrease and amounted to 15.26% in 2015, 11.64% in 2016, and 10.56% in 2017 [17].
Government expenditure on education as a percentage of GDP (%). Expenditure on tertiary as a percentage of government expenditure on education (%). Source: based on UNESCO data (
Currently, Kazakhstani HEIs encounter financial difficulties such as provision of a decent salary for employees, renovation of material-technical basis of HEI, promotion of academic mobility, and in-service faculty training. An unreasonable increase of tuition fees (compared to the financial capacities of local households) results in a loss of students due to the general low level of the population’s well-being. Consequently, the public finance of Kazakhstani HEIs is needed and should be a priority for the state as support to the economy and business. For the internal QA system of Kazakhstani HEIs, it would be advisable to adopt the experience of European HEIs to create mechanisms for continuous, comprehensive, and transparent assessment. On this basis further improvement of the education quality would be developed. The current practice to conduct an accelerated and chaotic assessment under the preparation for accreditation creates stress for all the HEI employees and suspends all its activities. All European countries under consideration are characterized by a high life quality and a high level of economic development, the industrial sector, the SME, the popular employment in nongovernmental organizations due to decent salaries there, and the social environment. All this creates a wide labor market and hence a greater demand for graduates. To ensure the effective modernization and reform in Kazakhstan, the government support of education also should comply with international standards; the level of the populations’ well-being and the country’s socio-economic development would allow students to choose a university that provides sound academic background and they would be able to pay for quality education and later find a decent work and fair salary.
According to the graduates’ survey results, out of a total number of respondents 1261 (100%), 929 (74%) of the University of International Relations graduates have found a job and are currently employed, of which 18 persons have started a business and are registered as individual entrepreneurs. Of a total number of respondents, 178 (14%) graduates have continued their education, while 154 (12%) persons had no job at the survey time. However, the Center for Social Payments confirmed official data for any payments only for 771 graduates out of the 929 graduates who answered they were employed. This means that only 771 graduates had a paid employment while the remaining 158 (12.5% of all respondents) were informally employed (Figure 2).
Survey of 2017 University of International Relations graduates employability. Source: based on survey results.
Seventy percent (992 persons) of all University of International Relations graduates (1323 persons) are women, while 30% (331 people) are men. Of a total number of interviewed (1261) graduates, 75% (945 persons) were women and 25% (316) men. Evidently, among those who received higher education in the University of International Relations, women are in majority. Similar situation is nationwide. In Kazakhstan, the education level of the employed population is high: 39% of the employed population have higher education, 37.5% specialized secondary education, and 17% general secondary one. At the same time, the education level among women is higher than that of men. 43.8% of employed women have higher education; this number among men is 34.5%. According to the survey, the percentage of female graduates with a high GPA (3.2–4.0 out of 4.0 possible) is 46% (out of all female graduates of 2017). Of a total number of male graduates, 42% of male graduates have a high GPA. However, whereas there’re no gender differences in the cognitive abilities of women and men, there’re gender inequalities in the labor market, namely, in hiring, in access to highly paid and prestigious jobs.
According to the graduates’ survey results, 74% of the University of International Relations female graduates surveyed have found jobs (701 persons), and out of 316 of the interviewed male graduates, 72% (228 persons) were employed. Thus, the percentage of the University of International Relations female and male graduates’ employability is almost the same. However, there is a significant difference in the employment nature. Namely, there’re gender differences in the spheres chosen by women and men and the positions offered by employers, in employment conditions and salaries. On the surface, there’s no gender discrimination as a phenomenon in Kazakhstan. Equal rights and opportunities for men and women are legislated at the state level. But in reality, there is gender discrimination in the labor market such as professional segregation, which, namely, is evident as the feminization of low-paid jobs and in the representation of women mainly at the lower levels of the economic hierarchy. A simple comparison of the average monthly wages of men and women shows the existence of gender differences when women’s labor is paid lower than men’s one, and women’s wages are 69.6% of men’s wages [18]. According to the RoK Statistic Agency, the wages of men in major groups of positions and professions are approximately 1.1–2.2 times more than the average wages of women on similar positions (Figure 3).
Average monthly nominal wage of men and women for selected occupations and functions (for all observed forms of economic activity). Source: the RoK Statistic Agency, 2018.
Women have limited access to prestigious work, since it is assumed their labor has a low return. According to the survey results, almost 70% of employed female graduates work in schools and colleges as teachers. In turn, the majority of male graduates (about 60%) work in prestigious companies, where wages are higher. The education sphere in Kazakhstan is one of the lowest paid with majority of women employed, since the men aren’t interested in such employment and do not compete with women here. Female graduates do not sustain competition with the males for well-paid jobs, where they shall work overtime and ongoingly upgrade qualifications. Even if a woman is unmarried at the time of hiring, employers prefer the man since a woman’s employment is sort of risky, namely, in terms of her future marriage and maternity leave. It is known that in future women will devote all their off-hours to the family and practically will have no opportunity to upgrade their skills and work overtime. Incompatibility of biological reproduction and economic production is “a fundamental source of dynamic allocative inefficiency and a basic cause of women’s inequality” [19].
Currently, paid work outside the home and unpaid chores and women’s time for childcare, especially in young low-income families, are almost incompatible. Low-income families cannot afford to automate their chores, hire a babysitter, and pay for preschool education. The lower the level of a household welfare, the higher the women’s workload in the household, and the less is her ability to get paid work outside the home [20]. This situation is exacerbated by inadequate social support by the Government and the lack of social infrastructure accessible to the needy families. “The lack of social policy measures and supports for unpaid family responsibilities hits poor and vulnerable families the hardest, as they have the weakest economic capacity to purchase goods (processed foods, labor saving devices) or services (private childcare, domestic help) that can free up their time for paid work. They are often forced to choose between employment and care or to combine them—choices which require painful sacrifices in terms of quality of employment and/or quality of care. These choices also have longer-term welfare and economic consequences” [21
Nationwide, in 2017, the share of the paid-employed was 77% or 6.5 million and self-employed 23% or 2 million persons [18]. At the same time, women make up 62% of all self-employed. Informally employed in the country make up 16% of the total number of employed or almost 1.4 million individuals, and almost half of them are women. Informally employed in the country do not have access to social security, are not eligible for loans, and do not have stable incomes and pension savings. According to a survey at the University of International Relations, it was revealed that 12.5% (158 individuals) of all respondents are employed in the informal sector. 57% (90 individuals) of them are women. Most of them responded that they work as interpreters/translators, but since they do not pay taxes and social contributions, they apparently work as freelancers in informal sector. This means that the work of 158 unemployed graduates is not protected by law and is normally characterized by worse working conditions. Informally employed women are more vulnerable in the labor market due to the fact that they are more dependent on social benefits, sick leave, and maternity leave.
All respondents noted that it is very difficult to find jobs in national and private companies, where wages are higher than in public sector, without any support and patronage. Employers require work experience in a certain field, which is mostly unacceptable for the HEIs’ graduates. All respondents said the majority of job ads require 1–3 years of work experience in the relevant field. Also, respondents noted that if any work experience wasn’t required, such job did not require higher education and had low wages (50,000KZT/month ($135)). Employers aren’t interested in additional on-the-job training for newcomers. One of the respondents said he lost his first job because the employer would need employees who already know everything and would not waste time for training. “Nobody was eager to share information I didn’t know,” the respondent complained. The HEIs’ graduates are the least competitive in the labor market due to a lack of work experience and relevant skills. The situation with female graduates is exacerbated due to gender stereotypes about hiring. State-support programs for the HEIs’ graduates to encourage employers to hire graduates could assist newcomers to avoid stress, depression, and disappointment.
According to official statistics, the unemployment rate in the RoK among youngsters is 38% of the total number of unemployed nationwide, and most of them are the HEIs’ graduates [18, 15]. In this case, it is more difficult for female graduates to find job than for males. The level of woman’s unemployment nationwide among the youth is about 8%, while the man’s unemployment rate is 6% [18]. Women are the majority among the unemployed. Female graduates face great difficulties in the labor market while getting more prestigious job. Employers secretly prefer to hire men, because they assume that women would marry sooner and go on maternity leave and could not work overtime due to their family obligations. Several female respondents noted that employers asked them on job interviews whether they intend to marry or have children sooner. Such questions shall violate women’s rights.
One hundred fifty-four persons out of all the respondents did not get a job. 61% of all unemployed respondents are women while 39% are men. Some unemployed respondents have valid reasons, among them are the army service for men and the maternity leave for women who have to perform only unpaid chores and childcare. Unemployed female graduates with children at the survey time responded they cannot get paid work since they devote all their time to childcare and chores, due to the fact that they cannot afford the babysitting services. Women’s unpaid work in the reproductive sector including childcare and education of future generation is important to reproduce the labor force and the future national economic growth [22]. The state support of young families and the improvement of social infrastructure would be cost-effective both for the families and for society as a whole.
Women are in minority among those who start business in the country. At the same time, most women entrepreneurs have small businesses. Only 15% of large companies in the country are headed by women [18]. Women choose small businesses since it does not require high costs and resources, as well as special knowledge and skills to manage financial documents and reports [23]. The University of International Relations graduates both females and males are in equally difficult positions when in open business, due to lack of financial resources and entrepreneurial skills. According to the survey results, only 1.9% of employed graduates were able to start business. Herewith, among the respondents who started business only 16% are women, while 84% are men. Obviously, the HEIs’ graduates need the state support to start and run the business, in the form of preferential taxation, access to loans, etc. In addition, the HEIs could pre-train students for business through the integration in the curricula of courses on the basics of entrepreneurial skills, business management, and project management.
The most important aspect to ensure the education quality is the development of partnerships with real sector of economy. All the universities surveyed have entered into partnerships with business and public sectors where students had internships. For students, it is a good opportunity to test their knowledge and skills in real conditions, and for employers it is possible to assess the competencies of potential employees. According to the survey at the University of International Relations, 37% of employed graduates found jobs through the university in entities which are the university’s strong partners and mainly in the organizations where they’d internships. The university-employer cooperation is also implemented through business and public sector representatives teaching at the university, development of educational programs, assessment of students, and job fairs. Employers’ survey on their satisfaction with the quality of training of the HEIs’ graduates is one of the methods to assess the conformity of knowledge, skills, and competencies gained with the needs of the labor market. The question remains. How to ensure the objectivity of the assessment? How to process the comparability of the assessment results on the training quality in different universities? How to consider the different specializations of the HEIs, differences by region, between urban and rural areas and cultural and national aspects?
The further strengthening of the University-Business network and the more systematic involvement of employers in the development of educational programs would facilitate the adaptation of program content to the needs of the labor market and the elimination of the gap between the labor market and education.
To be competitive, the HEIs’ graduates currently should be able to solve issues in different fields of expertise. In this regard, interdisciplinary education is relevant for the HEIs. Educational programs including interdisciplinary courses in the field of entrepreneurship or project management can develop business and projects’ development skills. Interdisciplinary courses in the gender economics can increase awareness of socioeconomic processes in society, instill a culture of equality, and develop critical thinking.
The primary standards and parameters of the Bologna Process adopted at the national and the institutional levels in Kazakhstan encounter a problem of their real implementation. First of all, the reformation should consider the level of socioeconomic development of the country, the conditions to develop the local labor market, and the living standard of the population. It may take some time to change the mindset, develop skills, and teach the universities’ staff to be responsible in developing educational programs that comply with international standards and in regulating and evaluating the HEIs’ activities.
The internal QA system of Kazakhstani HEIs should focus on the adoption of the experience of European HEIs to create mechanisms for continuous, comprehensive, and transparent assessment. The current practice to conduct an accelerated and chaotic assessment under the preparation for accreditation creates stress for all the HEI employees and suspends all its activities. An analysis of the QA systems of European universities has revealed that using the best practices of the European national and institutional QA systems can be a solution to the education quality in Kazakhstan. In the meantime, it should be borne in mind that Kazakhstan has completely different starting conditions for modernization than European countries. This paper argues that educational reforms successful in European countries are still ineffective in Kazakhstan due to the lower level of socioeconomic development of the country, a quality culture and quality of life, and insufficient budget expenditures to finance education.
Currently, Kazakhstani HEIs need the support of the state and the QA agencies to create a mechanism of an ongoing, comprehensive, and transparent self-evaluation that helps to improve the university and educational programs and does not imply a race for a place in ratings, in creation incentives for an effective and objective internal evaluation.
For the successful implementation of the best European practices in Kazakhstan, it is necessary that government expenditures on education, the welfare level of the population, and the life quality and socioeconomic development of the country also comply with international standards, so that Kazakhstanis can choose a HEI that provides quality education, be able to pay for quality education, and get a decent work.
Based on the survey results, the University of International Relations has a high percentage of graduates’ employability and trains competitive graduates. Despite the fact that there’re no gender differences in the cognitive abilities of male and female graduates and the employability percentage is almost the same for both women and men, women are more vulnerable, cannot compete in the labor market, and are employed in less paid sectors. Women are fewer among those who start and run their business. The low competitiveness of the female labor force in the labor market is primarily associated with their childcare and chore obligations, which require more women’s time the lower the well-being is in the household. Woman’s labor in the reproductive sector is not paid for but is important in shaping human capital and the labor force quality. Thus, the gender aspect is an essential factor that can impact future wages, employment opportunities, and skills development and retraining. State social support for young families and incentives for employers to hire female and male graduates will ultimately bring economic benefits to society as a whole. Employability is a common issue that should be solved jointly by a student himself and with the support of the HEIs, business, and the state.
The employers’ survey on the assessment of the graduates’ competences could provide a more realistic picture of the demand for graduates in the labor market, as well as their professions, and most importantly, on the quality of their training in the HEIs. It would also be rational to have an additional survey of the same 2017 graduates a few years later, to track/analyze considering the gender aspects—whether they were able to retain their jobs or find opportunities to retrain in order to get new skills that meet the modern demands of the labor market, who of them was able to be promoted, and whether women after maternity leave could brush up and compete in the labor market.
I would like to express my special thanks to adjunct professor of University of Eastern Finland Heimo Mikkola for the scientific guidance, technical assistance, and moral support. I am very grateful to Erasmus+ program and European team of the project “Implementation of Education Quality Assurance System via Cooperation of University-Business-Government in Higher Education Institutions” for the great opportunity to go through experts training on QA in higher education.
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Thus proteomics, an area of research that detects all protein forms expressed in an organism, including splice isoforms and post-translational modifications, is more suitable than genomics for a comprehensive understanding of the biochemical processes that govern life. The most common proteomics applications are currently in the clinical field for the identification, in a variety of biological matrices, of biomarkers for diagnosis and therapeutic intervention of disorders. From the comparison of proteomic profiles of control and disease or different physiological states, which may emerge, changes in protein expression can provide new insights into the roles played by some proteins in human pathologies. Understanding how proteins function and interact with each other is another goal of proteomics that makes this approach even more intriguing. Specialized technology and expertise are required to assess the proteome of any biological sample. Currently, proteomics relies mainly on mass spectrometry (MS) combined with electrophoretic (1 or 2-DE-MS) and/or chromatographic techniques (LC-MS/MS). MS is an excellent tool that has gained popularity in proteomics because of its ability to gather a complex body of information such as cataloging protein expression, identifying protein modification sites, and defining protein interactions. 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