Presentation Transcript

1. Pension Schemes and Pension Reforms in the Middle East and North Africa Markus LoeweGerman Development Institute, Bonn Paper presented at the Workshop “Beyond International Security: Social Security and Social Welfare in the Middle East and North Africa - What are the research and policy choices? ”organised by the Middle East and North Africa Social Policy Network at the Institute for Policy Research (IPR), University of Bath, 03 December 2013
2. Problems of existing pension schemes Pension reform initiatives Overview Increasing the effective coverage rate:the case of Tunisia Plans to replace PAYG by a funded scheme:the case of Egypt Conclusion Structure
3. Problemsof existing pension schemes
4. Government expenditures: for public health social transfers, subsidisation of social insurance: 13% Premiums paid to social insurance or private health or life insurance:4% Other private expenditure (saving, out-of-pocket-spending): 8-13% Spending by other actors(mainly NGOs): 1 % Funding is not the main problem for social protection in most MENA countries! Egypt, e.g., spends more than 25% of GDP on social protection: Loewe (2010)
5. Funding is not the main problem for social protection in most MENA countries! Even public spending for SP ranges between 7 and 13 % of GDP IMF (2011)
6. Non-contributive pensions for armed forces and top-level bureaucrats Private life insurance 1–7 % ofpopulation 5–20 % ofpopulation Social pension insurance 5–40 % ofpopulation. Only Libya, Algeria, Tunisia: > 70% Traditional /informal mutual support networks social assistance < 3 % ofpopulation 1st problem: gaps in coverage Gaps in coverage: mean that considerable parts of the population are completely left out rich formal sector(25–50% of population) informal sector(50–75% of population) Loewe (2010) poor
7. 1st problem: gaps in coverage Loewe (2014)
8. 1st problem: gaps in coverage Loewe (2014)
9. 1st problem: gaps in coverage Atthe same time, the potential of traditional mutual supportnetworksisshrinking… Share ofhouseholdsthatreceiveregularlyfianncialor in-kindsupportfrom relatives orneighbours Loewe (2010)
10. 2nd problem: Unequitabledistribution of available funds on different social groups Fragmentation of public pension schemes leads to preferential treatment of powerful groups and the urban middle classes Here: case of Egypt in 2010s Armed forces, higher rank state employees(8 % of population) Employees with unlimited con-tracts in private & public sector (52 % of pop., but only 36% enrol) Self-employed(9 % of pop., but only 5% enrol) All others (33 % of pop., but only 5% enrol) contributory pension contributory pension basic pension(subsidised) generous non-contributory pension separate health system (only for contributors) elementary medical care in public health system separate high-stan-dard health system (incl. dependants) lay-off protection unemployment pay Loewe (2010)
11. Subsidisation of public pension schemes public health spending public transfers Armed forces Civil servants Formal employees of private companies Informal sector workers per capita gross receipts from central government budget People below national poverty line 3rd problem: regressive redistribution Subsidisation leads to redistribution from poor tom middle classes Here: case of Jordan in early 2000s Loewe (2013)
12. 4th problem: Low transfer efficiency Administrative costs as % of total spending: Loewe (2010)
13. 5th problem: Unsustainable pension formulas In most MENA countries, the gross replacement rate is clearly above the world average: Robalino (2005)
14. 5th problem: Unsustainable pension formulas And so is the internal rate of return: Robalino (2005)
15. 6th problem: Weak link between contribution and benefit levels … create incentives to under-declare income for most of the life: Here, the case of the SSC in Jordan: Main reason: Pension formula does not take into account that early retirement means not only less con-tributions but also more pension payments Secondary reason:Formula neglects that individual wages tend to rise faster over life than prices Robalino (2005)
16. 6th problem: Weak link between contribution and benefit levels … in addition to incentives to retire early: Here, the case of the SSC in Jordan: Reason for difference: Pension formula is only based on the contri-butions of the last 3-5 years before retirement Reason: Minimum pension provision Robalino (2005)
17. 7th problem: Inefficient investment of reserves Robalino (2005)
18. Insurance members:- 1.0 % Contributions: 3.5 % of GDP Benefits: 2.5 % of GDP National Social Insurance Organisation Government:+ 1.0 % Subsidy: 1.5 % of GDP Credit:2.5 % of GDP National Investment Bank Investment of surplus: 5.3 % of GDP Revenue from capital investment: 2.8 % of GDP 7th problem: Inefficient investment of reserves Egypt during 1990s:Huge pension assets = implicit government debts Loewe (2001)
19. 8th problem: Huge implicit public debts Normalized Implicit Pension Debt in Select Countries Robalino (2005)
20. Pension reforminitiatives
21. Reform approaches Parametricreforms: Establishment of independent investment unit (Oman, Kuwait, Jordan, Lebanon) Increase in retirement ages (Jordan, Yemen) Capping of pension levels (Egypt) Reduction of minimum pensions (Jordan) Indexation of pension increases (Algeria, Tunisia, Yemen ) Systemic reforms and reform initiatives: Merger of different pension schemes (Jordan) Increasing the effective coverage rateby the inclusion of informal sector workers (Algeria, Bahrain, Egypt, Kuwait, Libya, Tunisia) Plans to replace PAYG by funded scheme – all not implemented(Egypt, Lebanon, Morocco and OPT)
22. Increasing the effective coverage rate:the case of Tunisia
23. Increasing the effective coverage rate (onlysocialhealthinsurance so far) Loewe (2014)
24. Increasing the effective coverage rate The case of Tunisia: 12 schemes, administered by two different bodies Loewe (2010)
25. Increasing the effective coverage rate The case of Tunisia: Loewe (2010)
26. Increasing the effective coverage rate The case of Tunisia: Loewe (2010)
27. Increasing the effective coverage rate Loewe (2010)
28. Plans to replace PAYG by a funded scheme:the case of Egypt
29. Plan to replace PAYG by a funded scheme June 2010: Parliament passes law to establish a new pension scheme in Egypt on 1 January 2012 After revolution: implementation put on hold until today membership mandatory for labour market entrants;members of the old system allowed but not obliged to switch informal sector workers fully covered, their contribution being topped up by 25% of their own contribution (subsidy from the treasury) Improved mechanisms to detect and sanction contribution evasion by NSIO Contribution rates reduces from about 40 to about 30 % of gross salaries,while cap on pensionable wage is removed (so that higher income members pay higher contributions) Largest share of contributions deposited on individual accounts, smaller share paid into solidarity funds financing survivor and work-disability pensions and risk sharing of longevity ... (see next slide) Sabreen / Maait (2011)
30. Plan to replace PAYG by a funded scheme ... Pension age raised gradually from 60 to 65 Early retirement pensions reduced in an actuarially fair way Pensions indexed to inflation rates (treasury bearing costs of increases higher than 8% annually) Minimum pension (= 18 % of net average wage) guaranteed by treasury (which will top up pensions that would be inferior otherwise) Shift from taxing contributions to taxing pensions Reform of the management of reserves: independent board of investment;up to 40% portfolio to be invested into broad portfolio of high yield high risk assets – only the rest to be deposited with the National Investment Bank Sabreen / Maait (2011)
31. Conclusion
32. Financing is not the problem! Rather, available public funds (7-13% of GDP) are spent for inefficient instruments and allocated in an unequitable way. Likewise, lack of technical and administrative know-how does not constitute the decisive bottle-neck!If needed, MENA governments could buy it in easily. Apparently, political factors are the core factors!MENA governments do not dare to implement any reforms because these might hurt their constituency or other influential social groups… The neopatrimonial regimes in the MENA region have to perform in social policies vis-à-vis the urban middle class to legitimise their own rule … but much less so vis-à-vis the poor who are much less well organised and start bread riots at utmost The only states that have really tried to integrate the informal sector into pension schemes have redundant resources (Algeria, Libya, Kuwait…) or a regime that used to be based on oppression much more than neopatrimonialism (Tunisia) Conclusion (for discussion!)
33. ThankYouverymuchforYourattention!
34. References Chaabane, Mohamed. 2002. Towards the Universalization of Social Security: The Experience of Tunisia, Extension of Social Security Paper No. 4. International Labour Office, Geneva. Gillion, Colin, John Turner, Clive Bailey and Denis Latulippe. 2000. Social Security Pensions: Development and Reform. International Labour Office, Geneva. Loewe, Markus. 2001. Social Security in Egypt: An Analysis and Agenda for Policy Reform, Cairo. Economic Research Forum (Working Paper 200024) Loewe, Markus. 2004. “New Avenues tobeOpenedforSocialProtection in theArab World: The Case of Egypt.” International Journal of Social Welfare, Vol. 13, No. 1, pp. 3–14. Loewe, Markus. 2010. Soziale Sicherung in den arabischen Ländern: Determinanten, Defizite und Strategien für den informellen Sektor. Nomos, Baden-Baden. Loewe, Markus. 2013. “Caring for the Urban Middle Class: The political economy of social protection in Arab countries.” In Katja Bender, Markus Kaltenborn and Christian Pfleiderer (eds.), Social Protection in Developing Countries: Reforming Systems. Routledge,: London. Loewe, Markus. 2014. “Pension Schemes and Pension Reforms in the Middle East and North Africa.” In KatjaHujo (ed.) Reforming Pensions in Developing and Transition Countries. Geneva: UNRISD Loewe, Markus et al. 2001. Improving the Social Protection of the Urban Poor and Near-Poor in Jordan: The Potential of Micro-insurance.Bonn: German Development Institute Robalino, David 2005. Pensions in the Middle East and North Africa. World Bank, Washington D.C. Sabreen, Mervat, and Mohamed Maait 2011. “Reforming Egypt’s Social Security System: A vision for social solidarity.” Social Security Observer 13.