As the government aims to roll out a comprehensive social solidarity system, new legislation on pension all out comes under fire from all sides
The first cabinet meeting following the government’s summer vacation during the month of August was to discuss the tasks assigned it by President Hosni Mubarak in order to implement his last electoral programme, which started five years ago and has still one more year left.
The cabinet’s spokesman, Magdy Rady, said the president’s assignments include setting up a comprehensive social solidarity system through rolling out the new insurance pension law and accelerating the process of registering irregular and seasonal labour, along with increasing the number of pension beneficiaries to 2.5 million before the end of the current year.
It has been more than a year since the government launched discussion on the new law among different entities, including the parliament and the Ministry of Finance.
Criticism, even before the law was born, was harsh. However the government continues to desperately defend it as the key to a new era of social solidarity.
The government has assigned an amount of LE213.2 billion from its budget for the coming fiscal year of 2010/11 to meet social requirements. ”This dimension is a fundamental pillar in Egypt’s financial policy,” Youssef Boutros-Ghali, Minister of Finance, said in a ministry press release.
He also confirmed a planned increase in expenditure on this social dimension during the new fiscal year of LE 47.142 billion, which represents a 29% increase.
Included in this amount is a whole item dedicated to support the pension and social solidarity system, which Boutro-Ghali estimates to be LE29.957 billion.
Last July the parliament ratified the new insurance and pension law in its final form. In a speech delivered to MPs, Boutros-Ghali defended the law, saying, “Not mentioning the word ‘social’ in the law’s project does not mean the government has ignored the solidarity principle.”
He also assured that the law will achieve social solidarity to a substantially higher degree than the current one, and will be to the benefit of those on current one, and will be to the benefit of those on small pensions and small salaries.
The government expects the new law to preserve living standards at retirement or on disability-related redundancy. It also hopes it will fix the defects of the existing system, with its contradiction in salaries before and after retirement.
For the first time, the National Organisation for Social Insurance (NOSI) will be able directly to invest about 46% of its funds with no interference, something not allowed for under the current system. Such a change will provide the organisation with the ability to create long-term and diverse investment portfolios that can include land, real estate, businesses and also securities.
The relation between NOSI and the government owned National Investment Bank seems to be coming to an end. The new law does not mention any role for the bank, which used to take care of the social insurance funds. The relation will become a direct one between the treasury-the new controller of the insurance funds-and its own investments once the new law is implemented.
Private sector companies are known for insuring their workers with much less than their actual salaries in order to cut costs, which is a very serious problem in an economy moving toward depending on the private sector for economic development. It is also malpractice and provides wrong and misleading financial indicators.
The new law takes this into consideration and criminalises such behavior with penalties of a one year prison sentence and a fine of between LE10,000 and LE50,000, depending on the number of workers in the company. Ironically, the fine stipulated in the old law is LE1 per uninsured worker.
Despite the advantages of the new law promoted by the government, as well as some observers and advocates, the new legislation has come under fire ever since its details were revealed to public more than a year ago. And crucially, it was criticized after it received ratification by the People’s Assembly last week.
The ratification is described as “boiled” by politicians and business organisations who oppose the law. A term that is derived from boiled eggs, which are poorly and quickly cooked, just like this new law, according to its critics.
An official document put together by a significant number of businesses and professional associations suggesting modifications has been submitted to the Minister of Finance. Unexpectedly, the law was ratified in its original form, disregarding the proposed refinements.
The good intention of the law to push private sector companies into fully insuring their workers by threatening them with imprisonment seems to go a little too far. It could instead lead to a crisis if it results in a large number of company owners becoming bankrupt.
The Egyptian Union of Insurance Companies has also shared concerns regarding the law, and presented its official opinion to both ministers of finance and investment.
The union fears the new law will negatively affect insurance companies, as it will provide the advantages that used to belong to them. Probably the sector’s business volume will shrink, as the law obligates individuals to apply for social insurance, which will result in fewer clients for private life insurance companies.
In reply to this criticism, Deputy Minister of Finance Mohamed Moeet attacked such opponents in an interview with Al-Masry Al-Youm, saying “I still insist that whoever makes these claims is either an ignorant or did not read the law.”
He added, “Whoever repeats that the law has been ‘boiled’ has no idea that the political leadership has revised the law throughout the past year on all levels. Meetings have been held to discuss it and technically revise it, while a societal dialogue has been conducted during the past three years with civil society, political parties, associations and universities.”
El-Badry Farghaly, head of the Retirees Union, responded skeptically Moeet’s claims regarding the ignorance of those opposing the law, saying in an interview with Al-Masry Al-Youm, “He [Moeet] is a person who was assigned for this specific mission. He himself did not read the Constitution or the old law. The social dimension has disappeared for him.”
Farghaly described the new legislation as an “investment law, not a social one.” He added that “it will be just like any citizen seeking a life insurance company.”
The Retirees Union chief also accused the new law of taking Egyptians’ saving over the past 35 years, which sum up to about LE435 billion, and transforming them into inflows to the public treasury. “We as retirees will lose all our wealth, we will then own nothing,” he commented, adding that the government is trying to pay off the growing public government is trying to pay off the growing public debt using any pensions’ money it can get hold of.
According to Farghaly, President Hosni Mubarak, the only figure who has the right to approve the law, should send it back for further discussion on a real societal level, in which everyone can participate. “It is an unconstitutional law, where insurance money is private not public, as the law aims to transform it once it enters the treasury,” he said.
Another aspect to the new law is that, when it is implemented, the retirement age will rise from 60 to 65 years. This is seen by some as positive, given the fact that workers will work longer and hence earn more. However, in a simple comparison between Egypt and other countries with better healthcare systems who are raising the retirement age, his item of the law can be criticized us unfair.
In other such countries, pensions are high and retirees have the chance to live some twenty years after retirement, and may be able to tour the world-as they say, “life starts after sixty five.”
On the contrary, life expectancy for Egyptians is 68 for men and 71 for women, according to the most up-to-date UN data. This means that the government’s promises of a “happy retirement” will not exceed an average of three years for men.
But women seem to be luckier, as they are set to enjoy a full six years of happiness after retiring.
This article is originally published by Al Borsa