Lebanese Economic AssociationInternational Development Research Center-Canada

Non Contributory Pension for the Elderly in Lebanon

Mounir Rached, Ph.D. Vice president, LEA

May 31st, 2012

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Contents Motive & objective

Current Social Security Schemes

A Non-contributory scheme for

the elderly2

I. Objectives

Secure a social safety scheme for the elderly

80% of elderly 65+ don’t have any pensions

Vulnerable segment- depend mostly on donations/family support

Prevalence of poverty among elderly

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2. Lebanon’s Social Security Scheme-NSSFMandatory

NSSF Branches:

employer Contribution

Health & Maternity Insurance (HMI) 7 %

Family & Educational Allowances (FEA) 6 %

End of Service Indemnity System (ESI) 8.5 %

Employee contribution 2 %

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NSSF

Total cost 23.5% of wages

Relatively very expensive

Share of employer (91%) is very high Induces fraud- damages credibility of scheme

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NSSF -Indemnity benefits (ESI).

At retirementLump-sum payment1 month/year of service up to 20

yearsAfter 20 years of service, 1.5

months /year of service.Health scheme is terminatedAll benefits stop

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NSSF Cont.

Health segment is in deficit

Subsidized by government: USD 100 million in 2012

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Public Sector pensionGenerous but unsustainable pension scheme

budget cost contribution: 3.2% of GDP

Public employees’ contributions : 6% of wages

Accrual benefit rate per year: Civil Servants: 2.13% Military pensions: 2.66% 9

Lebanese Universities

Lebanese Universities (not comprehensive)

Contributions : 5-11% of employee’s earnings –

Benefit: end of service indemnity-one month for each year

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Private School’s Solidarity Pension Fund

Annuity option – up to 85% of last salary

Indemnity Benefits: 1 month salary for 1st 10 years 2 months salary for each of the

following 20 years, 3 months salary for each year beyond

the 1st 30 years. Health benefits

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Cont.

Contribution: 6% of salary by members, 6% contribution by the school

B. The solidarity fund is a health and services plan.

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Syndicates Schemes

Lawyers, engineers, physicians, pharmacists, etc.

Defined percentage contribution

Benefit: pension & health

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3. A Non-contributory scheme for Lebanon- Background

Non-contributory pensions provide adequate protection for low-income and poor rural residents

40% of income per-capita/75% of minimum wage

Is complementary to the current Lebanese Social security scheme or revised scheme.

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Target

Targets low income groups by elimination

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3. Cont. International Experience:

Argentina : Reduced household poverty rate by 31% Reduced extreme household poverty rate by 67%

Costa Rica: The economic status of 15% of beneficiaries has

been improved

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3.Cont.. Bolivia:

Beneficiaries increased food consumption 165%

Brazil 80 to 90% of rural beneficiaries’ households, social

security benefits were responsible for at least 50% of the monetary household income

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3. Cont.. Based on International Experience, the Non-Contributory Scheme is able to provide the following;

Alleviate PovertyProvide Access to and substitution of social

servicesPromote the quality of lifeSupport of the local economy.

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3. Cont..

Improve HousingEnsure Agricultural development Reduce rural-urban migrationResponsible for Changes in social roles.Redistribute Regional income

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4. Budgetary Implication

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Population above 60 years old by age group, 2006,

2011

Age Group 2006 2011

60-64 112,736 124,148

65-69 97,813 102,301

70-74 77,877 82,973

75-79 52,083 59,068

80-84 28,110 32,903

85+ 16,099 17,434

Total 60-85+ 384,718 418,827

Total 65-85+ 271,982 294,679

Total population 3,784,779 4,055,922

60 + as percent of total 10.16 % 10.32%

65 + as percent of total 7.2 % 7.3%Source: H.A Abou Rizk, Population Conditions in Lebanon, 2003

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Option I: Full Coverage for 65+based on 2011 data

Pension

per person

Monthly

USD

Pension

per person

Annual

USD

Pension

per

capita

GDP

(%)

Total

cost

per

annum

USD

(000)

% of

GDP

75% of min wage337.5 4,050 38.118

1,193,44

92.8

50% 225 2,700 25.412 795,633 1.9

30% 135 1,620 15.247 477,379 1

Total pensioners 294,679

Percent of

population7.3

Minimum wage-

USD450

GDP 2011

USD(000)42,500,000

Population 4,000,000

Per capita GDP

USD10,625

Expenditure/GDP

31%

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Option II: for 65+

Pension

per person

Monthly USD

Pension

per person

Annual USD

Pension

per capita

GDP

(%)

Total cost

per annum

USD (000)

% of GDP

75% of min wage337.5 4,050 38.1 888,622 2.1

50% 225 2,700 25.4 592,415 1.4

30% 135 1,620 15.2 355,449 0.8

Total pensioners 294,679

Percent of

population7.3

Minimum wage-

USD450

GDP 2011-

USD(000)42,500,000

Population 4,000,000

Per capita GDP 10,625

Deductions:

Civil service

security

25466

49800

Net beneficiaries219,413

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Option V for 70+ Pension

per person

Monthly USD

Pension

per person

Annual USD

Pension

per capita

GDP

(%)

Total cost

per annum

USD (000)

% of GDP

75% of min wage 337.5 4,050 38.1 621184 1.5

50% 225 2,700 25.4 414123 1.o

30% 135 1,620 15.2 248,473 0.6

Total pensioners 192,378

Percent of population 4.8

Minimum wage-USD 450

GDP 2011- USD(000) 42,500,000

Population 4,000,000

Per capita GDP 10,625

Deductions:

Civil service beneficiaries 27,163

Syndicates 4,028

Residency requirement (5%) 7,808

Net beneficiaries 153,379 25

5. FinancingFrom the budget through stream- lining

expenditure

Transfers in 2012; LBP 3,728 billion = USD 2.4 billion

Pension cost (70+) USD 622 million 25% of transfers 2.5% of total government expenditure in 2012 4.2% of revenues 26

6. Administrative Arrangements

Integrated within the MOF

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7. Health servicesGovernment health services through pub.

hospitals

Private schemes $ 70 to $ 80 annual cost

Government’s global health insurance plan

Separate health and pension schemes

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