It has been over a year since the government introduced a new insurance and pension draft law for discussion by official agencies, including parliament and the Finance Ministry.
Even before the law was unveiled, its critics were unrelenting. Government officials, however, continue to defend it, describing it as the cornerstone of a ‘new era’ of social solidarity.
The government has allocated LE213.2 billion from the 2010/2011 state budget to address social requirements aimed at fostering human development. Finance Minister Yousef Boutros-Ghali stated in a ministry press release that the social dimension represented ‘a fundamental pillar of Egypt’s financial policy’.
These social requirements include spending on vital sectors such as education, subsidies for basic commodities and energy, electricity, low-income housing, and health insurance. The new budget also incorporates a special subsidy for purchasing local wheat at prices above the international rate.
This allocation signifies a 29-percent increase compared to equivalent expenditures in the previous fiscal year.
A significant portion of this amount is earmarked for supporting the pension and social solidarity system, which Boutros-Ghali estimates at LE29.957 billion.
On 13 July, parliament ratified the final draft of the new insurance and pension law. Addressing MPs, the minister defended the legislation, saying: ‘Not mentioning the word “social” in the law’s title does not mean the government has overlooked the principle of solidarity.’
He assured MPs that the new law would enhance social solidarity more effectively than the current system and benefit those with low pensions and salaries.
Government officials claim the new legislation is expected to improve post-retirement living standards. They argue that the law seeks to address the flaws of the existing system, particularly the discrepancies between pre- and post-retirement salaries.
For public sector workers, the average difference between salaries and monthly pensions is LE50 less, which the government considers transparent. However, in the private sector, the average difference is LE450 less, as private companies often insure employees with salaries significantly below their actual earnings.
For the first time, the law allows the National Organisation for Social Insurance (NOSI) to directly invest 46 percent of its funds without interference, a move currently prohibited. This change will enable the organisation to create diverse long-term investments across various asset classes, including real estate, businesses, and securities.
The relationship between NOSI and the state-owned National Investment Bank (NIB) appears to be coming to an end. The new law does not provide a role for the bank, which previously managed social insurance funds. Once the new law takes effect, the treasury will become the new controller of the insurance funds and their investments.
Private sector companies are notorious for insuring their workers at salaries far below actual levels to reduce costs — a serious issue in an economy increasingly reliant on the private sector for economic development. This practice often leads to distorted financial indicators.
The new law penalises such behaviour with a one-year prison sentence and a fine ranging from LE10,000 to LE50,000, depending on the number of workers employed by the offending company. Under the current law, the fine is merely LE1 per uninsured worker.
Despite the government’s promotion of the new law’s advantages, it has faced criticism since its details were made public over a year ago. Criticism has only intensified following its ratification by the People’s Assembly last week.
Opponents among politicians and business organisations have described this permanent ratification as ‘boiled’ — a term likening the law to poorly and hastily cooked boiled eggs.
An official document drafted by numerous business and professional associations was submitted to the finance minister, suggesting amendments. Unexpectedly, the law was ratified in its original form, disregarding these entities’ input.
Among the dissenting organisations were the Egyptian Businessmen’s Association (EBA), Egyptian Hotels Association (EHA), and Egyptian Junior Business Association (EJB), all of which opposed the prison penalties for company owners.
While the law’s intention to compel private sector companies to fully insure their workers by threatening imprisonment may seem well-meaning, it risks triggering a crisis. If enforced, it could bankrupt many company owners, potentially leading to broader economic repercussions.
Ahmed Alhindy, CEO of Alwataneya Logistics, criticised the law, saying: ‘Workers, by their choice, prefer to pay as little as they can for insurance as they only care about short-term income. I don’t mind at all insuring them according to their real income, as the new law mandates. However, there will always be a problem with seasonal workers and those who refuse to sign contracts.’
He also expressed dissatisfaction with the prison penalties imposed on private companies. ‘It is very difficult to differentiate between those who refuse to insure their workers and those who, under pressure, insure with figures less than real. I think it is too harsh on us, but we have to comply. What else can we do?’ he wondered.
The Egyptian Union of Insurance Companies has also voiced concerns about the law, preparing another official document to present to the ministers of finance and investment.
The union fears that the new law will negatively impact insurance companies by stripping away certain advantages they previously enjoyed. It is undoubtedly a challenge for the sector, as the law obliges individuals to apply for social insurance, potentially reducing the client base for private life insurance companies.
Responding to this criticism, Deputy Minister of Finance Mohamed Moeet dismissed the concerns in an earlier interview with Al Masry Al Youm, saying: ‘I still insist that anyone who says this is either ignorant or has not read the law.’
He added: ‘Whoever claims the law has been “boiled” has no idea that the political leadership has thoroughly reviewed it over the past year at all levels. Meetings have been held to discuss and technically revise it, while societal dialogue has taken place over the past three years involving civil society, political parties, associations, and universities.’
In a phone conversation, Albadry Farghaly, head of the Retirees Union, strongly rebutted Moeet’s accusations, saying: ‘He [Moeet] is a man assigned specifically for this mission. He himself has not read the constitution or the old law. The social dimension has escaped him.’
Farghaly continued his criticism, describing the law as an ‘investment law, not a social one’. He added: ‘It will be just like any citizen seeking a life insurance company.’
He further accused the law of seizing Egyptians’ savings from the past 35 years — amounting to about LE435 billion — and transforming them into inflows for the public treasury. ‘We, as retirees, will lose all our wealth. We will then own nothing,’ he lamented.
Farghaly added to his accusations against the government, claiming they are attempting to pay down the growing public debts using pension funds. According to the latest monthly report from the Central Bank of Egypt (CBE), the country’s total internal debt has reached LE863.3 billion, while external debt stands at US$33.3 billion. This situation seemingly leaves the government desperate to find sources to bridge the gap. The new law, it appears, would contribute to narrowing this gap by LE435 billion.
He called on President Hosni Mubarak, the only person with the authority to approve the law, to return it for further discussions on a broader societal level, allowing for wider participation. ‘It is an unconstitutional law, as insurance money is private, not public, despite the law’s intention to transform it into public funds once it enters the treasury,’ Farghaly argued.
Another contentious element of the law is the increase in the retirement age to 65 years, which some view positively as it allows workers to remain employed longer and earn more. However, it is unclear how this change benefits the Egyptian economy. With a labour force of approximately 25.8 million workers and an unemployment rate of 9.7 percent, retirements provide crucial job opportunities for the unemployed. By raising the retirement age, the labour market will lose this balance for five years, likely accelerating unemployment rates.
The government’s aim may be to delay pension payouts by requiring individuals to work until 65, which could make economic sense in a stable unemployment environment — but this is not the case in Egypt.
Moreover, in comparison with countries boasting better healthcare systems, this aspect of the law appears inequitable. In nations where pensions are high and retirees often enjoy two decades of post-retirement life, the phrase ‘life starts at 65’ holds some truth. Conversely, in Egypt, life expectancy is 68 for men and 71 for women, according to the latest United Nations data. This means that the government’s promise of a ‘happy retirement’ would amount to an average of just three years for men and six years for women.
Another version of this article is published by Al Masry Al Youm English.