Non Contributory Pension for the Elderly in Lebanon Mounir Rached, Ph.D. Vice president, LEA May 31 st,

Contents  Motive & objective  Current Social Security Schemes  A Non-contributory scheme for the elderly 2

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 3

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2. Lebanon’s Social Security Scheme-NSSF Mandatory 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 % 5

NSSF Total cost 23.5% of wages Relatively very expensive Share of employer (91%) is very high Induces fraud- damages credibility of scheme 6

NSSF -Indemnity benefits (ESI). At retirement Lump-sum payment 1 month/year of service up to 20 years After 20 years of service, 1.5 months /year of service. Health scheme is terminated All benefits stop 7

NSSF Cont. Health segment is in deficit Subsidized by government: USD 100 million in

Public Sector pension  Generous 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 10

Private School’s Solidarity Pension Fund  Annuity option – up to 85% of last salary  Indemnity Benefits:  1 month salary for 1 st 10 years  2 months salary for each of the following 20 years,  3 months salary for each year beyond the 1 st 30 years.  Health benefits 11

Cont.  Contribution:  6% of salary by members,  6% contribution by the school  B. The solidarity fund is a health and services plan. 12

Syndicates Schemes  Lawyers, engineers, physicians, pharmacists, etc.  Defined percentage contribution  Benefit: pension & health 13

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. 14

Target Targets low income groups by elimination 15

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 16

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 17

3. Cont.. Based on International Experience, the Non- Contributory Scheme is able to provide the following;  Alleviate Poverty  Provide Access to and substitution of social services  Promote the quality of life  Support of the local economy. 18

3. Cont..  Improve Housing  Ensure Agricultural development  Reduce rural-urban migration  Responsible for Changes in social roles.  Redistribute Regional income 19

4. Budgetary Implication 20 Population above 60 years old by age group, 2006, 2011 Age Group ,736124, ,813102, ,87782, ,08359, ,11032, ,09917,434 Total ,718418,827 Total ,982294,679 Total population3,784,7794,055, as percent of total10.16 %10.32% 65 + as percent of total7.2 %7.3% Source: H.A Abou Rizk, Population Conditions in Lebanon, 2003

21 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 wage , ,193, % 2252, , % 1351, ,3791 Total pensioners294,679 Percent of population7.3 Minimum wage-USD450 GDP 2011 USD(000)42,500,000 Population4,000,000 Per capita GDP USD10,625 Expenditure/GDP31%

22 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 wage , , % 2252, , % 1351, , Total pensioners 294,679 Percent of population 7.3 Minimum wage-USD 450 GDP USD(000) 42,500,000 Population 4,000,000 Per capita GDP 10,625 Deductions: Civil service security Net beneficiaries 219,413

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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 , % 2252, o 30% 1351, , Total pensioners 192,378 Percent of population 4.8 Minimum wage-USD 450 GDP 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. Financing From 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 % of revenues 26

6. Administrative Arrangements Integrated within the MOF 27

7. Health services Government health services through pub. hospitals Private schemes $ 70 to $ 80 annual cost Government’s global health insurance plan Separate health and pension schemes 28