The country's pension system might soon be overhauled. Reem Leila rummages through the new draft law The cabinet has approved the 10-chapter pension draft and has submitted it to the People's Assembly, hoping that a new integrated legislation will be passed in the next few months. Minister of Finance Youssef Boutros Ghali told parliament recently that the World Bank will help overhaul the current pension system to make it a "unified social insurance" law. This would widen the base of beneficiaries without adding any financial burdens on the government's budget. The 111-article pension draft raises the retirement age by five years, to 65, gradually starting from 2015 until 2027. The new law will further protect pension benefits to ensure a decent life for the retiree and his family after he or she stops working. Amendments made to the old pension law 79/1975, according to Ghali, would also help boost savings rates and improve growth prospects. "The new pension law will raise Egypt's savings rate from 14 per cent to 18 per cent of gross domestic product, leading to growth of at least nine per cent," said Mohamed Maait, assistant to the minister of finance for pensions and social insurance affairs. The new law is integrated and adds further protection to workers with regard to their retirement pension. The new law will further protect pension benefits to ensure a decent life for the retiree and his family. "In addition to pensions, developing and expanding the social insurance net has always been a top priority, especially with regard to "the lowest-income and most needy strata," stated Maait. The new law will lower the percentage of an employee's contribution to his pension from the current 40 per cent to 23 per cent. The employees' share will be 12 per cent while the employer will constitute the remaining amount. According to the new draft, three per cent of the 23 per cent will be allocated to the social solidarity fund. After the People's Assembly approval, the new draft will first be enforced in 2012. The implementation of a new pension system, in parallel with the existing system, will also allow better management of pension funds, with the possible investment of such funds in the stock market, and grant higher pensions to employees after retirement. It will guarantee that every penny one puts in the fund from day one will go to one's final pension. "Two-thirds of each individual's pension fund would be invested in government bonds and the rest in other investment funds," said Maait. The draft also gives employees covered by the scheme welfare benefits for six months if they lose their jobs. Monthly payments would decline by four per cent a month during the period in which they were looking for a new job. "My responsibility is to provide a stable income for six months," Maait added. For the first time, the new law will give insured Egyptian citizens unemployment welfare, in the range of 65 per cent of the last gross wage received. "Employees will have the right to add to their wages on which pensions will be calculated over any additional and regular bonuses they receive from their work," Maait said. The employer would make related insurance payments and the employee would be eligible for benefits provided payments were made in the previous 12 months. Employers would be punished by fines or imprisonment for failing to make such payments. "Employees who are covered by the current pension system can join the new one in case they are less than 35 years old," Maait stated. The economy is now growing at about five per cent a year but was expanding at about seven per cent before the financial crisis. Abdel-Fattah El-Gebali, deputy director of Al-Ahram Centre for Political and Strategic Studies, said the new law is expected to have a significant impact on the budget when fully implemented in terms of the savings it will allow the government to make on its payments to cover the current deficit in the pension system. The new law will permit widows and divorcees to combine between two pensions. They can collect both of their parents' and deceased husbands' pensions. It will also provide coverage to citizens in case of death, disability, work injuries, unemployment and old age. "These items are not fully covered in the current system," El-Gebali said. According to recent figures released by the Central Agency for Public Mobilisation and Statistics (CAPMAS), the number of citizens over the age of 60 is climbing. In addition, those covered by social insurance come to only 13 per cent in the informal sector, 25 per cent in the private sector, and a whopping 89 per cent in the public sector. Low coverage in both scope and quality has resulted in increased poverty among senior citizens, a serious problem since the elderly population in Egypt will surpass the younger for the first time in history by 2050, according to recent UN reports. The social security pension began in 1950 and today covers more than seven million citizens. The government is responsible for providing pensions to anyone who reaches the age of 60 and those who suffer permanent disability, mostly financed by employers, employees and the government. The pension system was developed and amended several times over the years, resulting in several co-existing systems. These include the general pension law of 1936 which covers basic pensions; the 1950's social security pension covering those without a source of regular income; the Sadat social insurance system created in 1978 covering those who suffer total disability and those over 65 whose income is less than LE70 monthly. The new unified law which has been slated to the People's Assembly will cancel all the previous systems and will include new benefits for pensioners, including increasing the minimum pension in case of work-related injury leading to total disability, from a 60 per cent maximum of a given worker's previous wage to 80 per cent. The new law will include new categories of beneficiaries and hence extend social insurance protection to all citizens including informal sector labourers and vendors. According to the current law, employees must subscribe to the pension system for at least 10 years to receive a pension. "In the new draft, people will get 65 per cent of their last salary, regardless of the number of years of subscription. If there is an employee who has subscribed for only one or two years, he or she will be deserving of a pension," explained El-Gebali. According to the new law, casual workers who are not employed in public or private companies will enjoy the same benefits as other workers. Workers will be given three options from which to choose: the first is receiving a regular pension at the age of 60. A credit account will be opened in which the employee deposits fixed monthly instalments. Based on this, he will have a previously known sum of money upon retirement. Workers can also open personal pension accounts in which they deposit various sums of money over the years until retirement age. An employee would then have the right to withdraw this money upon retirement. The third option is to create an investment fund for pension beneficiaries. "This fund would be privately managed and the revenues from its investments will be routinely added to the initial value of investment," Maait said. Despite the advantages of the new pension law, El-Badri Farghali, head of the as yet established Pensioners General Union, is not a supporter. Farghali is accusing the minister of finance of being after pension reserves, estimated at LE380 billion, to add it to the government's coffers. "The minister wants to take these reserves in order to cover the domestic debt," stated Farghali. He added this will enable the government to borrow more money and will allow it to have a free hand with pensioners' money. Officials claim that this will boost the country's economic system in the long run. Farghali also pointed out that the new law will annul health insurance under the guise that this will be covered by the new health insurance law which is currently under discussion at the People's Assembly. The new law will also deprive pensioners of the discount they receive in the fees they pay in public transportation and other facilities provided to them. The fear of pension money slipping into the government's coffers is unjustified, say the experts. Both Maait and El-Gebali say the concerns are unfounded. Pension money is currently being delivered to the country's investment bank to be invested in several national projects. Maait said the money is currently being treated as public property, while the new draft views it as private property. The value of annual subscriptions is LE18 billion while the amount paid to the public is LE36 billion, a deficit of LE18 billion, to be covered by the government which will act only as a grantor to the subscribers' money. "The new law's target is to provide a reasonable pension to all of the country's citizens," El-Gebali added.
