- Life Style
On 13 June, one year after the government introduced a new insurance and pension law, parliament ratified the final draft.
The government has allocated LE213.2 billion of the 2010/2011 state budget for social spending, a 29-percent increase compared to the previous fiscal year.
Finance Minister Youssef Boutros-Ghali said that social welfare represents "a fundamental pillar of Egypt’s financial policy,” and government officials call the new legislation the key to a "new era" of social solidarity.
But even before the law's inception, there has been criticism that it is less tuned to social needs and more directed toward investment ends.
Social insurance or investment?
Defending the new law's omission of the word "social," Boutros-Ghali said, “not mentioning the word ‘social’ in the law’s title doesn't mean the government has ignored the principle of solidarity.” He went on to assure MPs that the new law will do more for social solidarity than the existing one, and promised benefits to those currently receiving meager pensions and salaries.
The government's allocation for 2010/2011 social spending includes education, consumption subsidies, energy, electricity, low-income housing, and health insurance; an estimated LE29.957 billion of the total amount will go to supporting the pension and social insurance system.
Further, for the first time, Egyptian law permits the National Organization for Social Insurance (NOSI), the entity that allocates social services like health, disability and aging insurance to citizens, to directly invest 46 percent of its funds without any bank mediation. This change is designed to allow the organization to create diverse long-term investments of varying asset classes, including real estate, businesses and securities.
The relationship between NOSI and the state-owned National Investment Bank (NIB) appears to be ending. The new law does not provide a role for the NIB, which used to be responsible for investing social insurance funds. Instead the law establishes a direct relationship between the treasury--the new controller of the insurance funds--and its own investments. In other words, the government will invest directly in pension funds as opposed to doing so through the NIB.
Despite the new law’s advantages as promoted by the government and advocates, opponents describe it as hastily prepared, and objected to its ratification by the People's Assembly three weeks ago.
Responding to criticism, Assistant Finance Minister Mohamed Moeet insisted the new law has been carefully drafted and revised on all levels. "The law has been discussed and technically revised through a dialogue over the past three years with civil society organizations, political parties, associations and universities,” he said.
El-Badry Farghaly, head of the Retirees Union, believes however that the new law carries insufficient social provisions, calling it an investment law, not a social one: "[For citizens], the new system will be just like seeking out private life insurance companies."
Farghaly also warned that the law will seize pensioners' money--roughly LE435 billion, or the equivalent of 35 years of savings--and re-channel it to the public treasury in order for the government to pay off its growing debt. “We as retirees will lose all our wealth, after which we will then own nothing."
According to the old law, the government had no direct authority managing such money. However, once it becomes a figure in the public treasury, the government will have authority to allocate it at will.
According to the Central Bank of Egypt's most recent monthly report, the total internal debt of the country stands at LE863.3 billion, while external debt has reached US$33.3 billion (LE184.8 billion). The government is desperately looking for sources to offset this deficit. Some say the new law can help reduce debt by up to LE435 billion.
The Egyptian Union of Insurance Companies has also expressed concern regarding the law, which it presented in an official document to the ministers of finance and investment. The union fears the new law will negatively affect insurance companies by cutting into their business, as the law will most likely reduce demand for private life insurance companies because it obligates individuals to apply to the state social insurance system.
Pre- and post-retirement
Government officials say they expect the new legislation to bolster savings and improve post-retirement living standards, stressing that the law aims to narrow the existing gap between pre- and post-retirement salaries. Public-sector retirees currently earn monthly pensions that average LE50 less than their pre-retirement salaries. In the private sector, that average difference is LE450.
Private-sector companies are known for providing workers with insurance far below their actual salaries in order to reduce costs--a practice that often produces misleading financial indicators as well as serious problems for an economy moving towards dependence on the private sector for economic development.
The new law criminalizes such behavior, with penalties ranging from a one-year prison sentences to fines as high as LE50,000 depending on the number of workers at the company in question. The current law stipulates a fine of LE1 per uninsured worker for similar violations.
A number of business and professional associations submitted proposals for modifications to the Minister of Finance which were not incorporated into the ratified law. Among those organizations were the Egyptian Businessmen’s Association (EBA), the Egyptian Hotels Association (EHA), and the Egyptian Junior Business Association (EJB), all of whom rejected the clause stipulating prison terms for company owners who violate the new law.
Ahmed Alhindy, CEO of Alwataneya Logistics, argues that many workers would in fact be satisfied with paying less for insurance. “Workers by choice like to pay as little as they can for insurance as they only care about short-term income. I don’t mind insuring them according to their real income as the new law says. However, there is always the problem of seasonal workers, and those who refuse to sign contracts."
Alhindy is also dissatisfied with the idea of prison terms imposed against private companies. “It is very difficult to differentiate between those who refuse to insure their workers and those who agree, but pay them insufficiently. I think the new law is harsh on us, but we have to obey. What else can we do?"
Retiring at 65
The new law also raises the retirement age from 60 to 65 years, which some see as enabling employees to work longer and earn more money.
The impact on the Egyptian economy is questionable however, as the unemployment rate sits at nearly ten percent. Retirement, on the other hand, provides job openings for the unemployed. The new law may threaten this balance in the labor market and risk driving up unemployment.
And in a country with a modest life expectancy--68 for men and 71 for women, according to UN data--the government's promise of a "happy retirement" may in fact ring hollow.