Social protection
Lebanon’s long awaited pension reform within reach
For many workers in the Lebanese private sector, reaching retirement age means facing an uncertain future with little access to social protection. But that’s about to change thanks to the collaborative work of the government, its social partners, the ILO and the World Bank.
BEIRUT (ILO News) – Seventy-year-old Josephine Tohme worked as an insurance broker in Beirut for forty years before retiring in 2006. Upon retirement at age 64, she received a lump sum which covers some of her basic necessities but relies on other savings and support from her daughter to cover the shortfall.
“I don’t know how retired persons without access to other sources of income survive,” she says.
Tohme, like 28 per cent of Lebanon’s 1.5 million-strong workforce, is covered by the country’s decades-long retirement scheme for the private sector, which includes an end-of-service indemnity but provides no further social security benefits.
Lebanon operates an End-of-Service indemnity (EOSI) programme for the private sector – a one-off payment amounting to one month for each year worked, based on the worker’s final salary.
So a private sector worker who retires on a salary of US$1000 per month after twenty years of employment can expect US$20,000 upon retirement but no further state support.
There are no monthly payments and all benefits end at retirement, including health coverage at an age when it is often most needed.
After cashing in her indemnity, Tohme’s only option for affordable healthcare was through her daughter’s company scheme.
More than 80 per cent of Lebanon’s over-65 population lacks pension and health coverage – most of them previously employed in the informal economy and the private sector. Retirees from the public sector and armed forces, who constitute less than 20 per cent of the workforce, have their own retirement schemes.
Retired private school teacher Naim Baroud, 67, says the current system is a source of uncertainty. Baroud funds his retirement through a combination of his end-of-service indemnity and rents from properties he owns.
“My indemnity helps but I handle it with great caution because I don't know how long I will need it, and what expenses might come up unexpectedly,” says Baroud.
A monthly pension would guarantee retirees like Baroud a decent standard of living for the rest of his life.
The situation is not easy for employers either: the current system imposes large end-of-service payments to retiring employees.
Employers contribute 8.5 per cent of the worker’s monthly salary to the National Social Security Fund (NSSF) coffers each month – but then are expected to pay a further settlement when the worker retires.
That’s because the benefit paid to the worker by the NSSF falls short of the benefits to which she/he is entitled to – and the last employer is bound to pay the difference.
Hassan owns a paint factory that was established by his father in the 1950s, and employs nearly fifty employees. He says he’s considering closing it down and emigrating because “the economy is in tatters and the tax and social security systems don’t help.”
“It’s a real strain on businesses to have to muster large payments when an employee retires,” says Hassan.
But this now looks set to change: A proposal to reform Lebanon’s private retirement programme has received broad national support, nearly ten years after the government first announced plans to amend the indemnity system.
The draft scheme, supported by the International Labour Organization and the World Bank, would transform retirement compensation from a package that partially sustains the elderly, to secured financial coverage for workers and their families.
It would transform lump-sum payments into a monthly pension, guaranteeing retired workers financial support and social security for the remainder of their lives. It would also make it easier for employers to transfer liability when workers change jobs, and introduce an invalidity package as well as benefits for dependents who may survive the worker.
“We received support from different partners who have been part of the discussion for 15 years and who had presented their own proposals,” says Pierre Plamondon, the project’s chief actuary referring to government, employer and worker representatives.
The ILO, upon the request of the Labour Ministry has tasked Plamondon with valuing the proposed scheme’s costs. Final results of the valuation are expected by August 2013.
“Both workers and employers stand to benefit from the new scheme,” says Ursula Kulke, the ILO’s Senior Regional Social Security Specialist who is working with the Lebanese government on pension reform. “Retired workers can expect financial security and employers are relieved of sizable payouts to bridge the gap between pension contributions and end-of-service indemnity requirements.”
Lebanon is one of a shrinking minority of countries that maintains an EOSI for retired workers. At the regional level, regular pensions cover private sector workers in old-age in countries like Saudi Arabia, Oman, the United Arab Emirates, Jordan, Syria and Iraq.
The details of the new scheme are expected to be defined over the next few months.
Whatever the outcome, Lebanon’s pension reform has been a long time coming.
| I don’t know how retired persons without access to other sources of income survive." |
Tohme, like 28 per cent of Lebanon’s 1.5 million-strong workforce, is covered by the country’s decades-long retirement scheme for the private sector, which includes an end-of-service indemnity but provides no further social security benefits.
Cash but no benefits
Lebanon operates an End-of-Service indemnity (EOSI) programme for the private sector – a one-off payment amounting to one month for each year worked, based on the worker’s final salary.
So a private sector worker who retires on a salary of US$1000 per month after twenty years of employment can expect US$20,000 upon retirement but no further state support.
There are no monthly payments and all benefits end at retirement, including health coverage at an age when it is often most needed.
After cashing in her indemnity, Tohme’s only option for affordable healthcare was through her daughter’s company scheme.
More than 80 per cent of Lebanon’s over-65 population lacks pension and health coverage – most of them previously employed in the informal economy and the private sector. Retirees from the public sector and armed forces, who constitute less than 20 per cent of the workforce, have their own retirement schemes.
Retired private school teacher Naim Baroud, 67, says the current system is a source of uncertainty. Baroud funds his retirement through a combination of his end-of-service indemnity and rents from properties he owns.
“My indemnity helps but I handle it with great caution because I don't know how long I will need it, and what expenses might come up unexpectedly,” says Baroud.
A monthly pension would guarantee retirees like Baroud a decent standard of living for the rest of his life.
Financial burdens on employers
The situation is not easy for employers either: the current system imposes large end-of-service payments to retiring employees.
| It’s a real strain on businesses to have to muster large payments when an employee retires." |
That’s because the benefit paid to the worker by the NSSF falls short of the benefits to which she/he is entitled to – and the last employer is bound to pay the difference.
Hassan owns a paint factory that was established by his father in the 1950s, and employs nearly fifty employees. He says he’s considering closing it down and emigrating because “the economy is in tatters and the tax and social security systems don’t help.”
“It’s a real strain on businesses to have to muster large payments when an employee retires,” says Hassan.
Reform on the horizon
But this now looks set to change: A proposal to reform Lebanon’s private retirement programme has received broad national support, nearly ten years after the government first announced plans to amend the indemnity system.
The draft scheme, supported by the International Labour Organization and the World Bank, would transform retirement compensation from a package that partially sustains the elderly, to secured financial coverage for workers and their families.
It would transform lump-sum payments into a monthly pension, guaranteeing retired workers financial support and social security for the remainder of their lives. It would also make it easier for employers to transfer liability when workers change jobs, and introduce an invalidity package as well as benefits for dependents who may survive the worker.
“We received support from different partners who have been part of the discussion for 15 years and who had presented their own proposals,” says Pierre Plamondon, the project’s chief actuary referring to government, employer and worker representatives.
The ILO, upon the request of the Labour Ministry has tasked Plamondon with valuing the proposed scheme’s costs. Final results of the valuation are expected by August 2013.
“Both workers and employers stand to benefit from the new scheme,” says Ursula Kulke, the ILO’s Senior Regional Social Security Specialist who is working with the Lebanese government on pension reform. “Retired workers can expect financial security and employers are relieved of sizable payouts to bridge the gap between pension contributions and end-of-service indemnity requirements.”
Lebanon is one of a shrinking minority of countries that maintains an EOSI for retired workers. At the regional level, regular pensions cover private sector workers in old-age in countries like Saudi Arabia, Oman, the United Arab Emirates, Jordan, Syria and Iraq.
The details of the new scheme are expected to be defined over the next few months.
Whatever the outcome, Lebanon’s pension reform has been a long time coming.