Monday,20 August, 2018
Current issue | Issue 1231, (29 January - 4 February 2015)
Monday,20 August, 2018
Issue 1231, (29 January - 4 February 2015)

Ahram Weekly

Social insecurities

Too many Egyptian workers pay contributions to social security but get little, if anything, in return. Sherine Abdel-Razek reports

Al-Ahram Weekly

Egypt’s social security schemes have been in place since the 1950s, benefitting around 21 million people every year. They are now in need of restructuring, to better support those who pay into the system. Billions of pounds are contributed to the schemes every year.

Membership of the social security system is mandatory for employees, and voluntary for non-waged workers, such as employers and the self-employed. The system covers public- and private-sector employees in case of disability, injury or sickness. It also provides old age pensions and maternity benefits.

Contributions are deducted from both the basic and variable pay of the employee and calculated as percentages of the salaries reported to the National Authority for Social Insurance (NASI). The total contribution amounts to an average of around 40 per cent of salary, paid by the employees, employers and the government, with the latter’s contribution set at one per cent.

In the Strategic Economic Trends report, Mohamed Nour Eddin, former head of research at the Arab Bank and an expert on the social security system said it faces various problems and suggested ways to reform it.

Topping the list of problems is the private sector’s low level of participation in the system, either by not insuring employees or by insuring only a percentage of those employed. Sometimes workers are covered by the social security system but their insurable wages reported to the social security authority are lower than their real wages.

Some private companies also list new employees as trainees for at least two years. The lack of supervision of the system has meant that such abuses have increased. In the 1960s and 70s inspectors used to visit private companies to make sure that workers had regular contracts and, for their social security deductions, that their real wages were stated.

Some public and private companies fail to transfer the contributions, including the part the employees pay, to the NASI. The figure for such overdue payments from public companies alone was as high as LE35 billion in 2005.

The slow rate of recruiting new employees in public companies also limits new contributions. Also, The early retirement programme adopted by public enterprises has resulted in almost 500,000 workers benefiting from the system without paying monthly contributions.

Another problem highlighted by Nour Eddin is the minimum value of the contributions, especially in light of low basic salaries and unequal increases in variable incomes. The low maximum value of the contributions, set at LE2,290 in January 2014, limits the value of the benefits the insured person will get.

According to a report referred to by Nour Eddin, the system covers 21.5 million people, which represents only 30 per cent of those in work, as seasonal and informal labour is not included.

The percentage of those included in the system differs from one sector to another. While 97 per cent of those working for the government are insured, only 23 per cent of those working in the private sector are included in the social security system.

Another shortcoming is that only 17 per cent of those classified as poor are insured, compared to 43 per cent in the higher income brackets, meaning that those who really need social assistance often do not get it.

However, the biggest problem with the system is the way the money is invested. Money from public and private pension and insurance funds is deposited with the National Investment Bank (NIB), formed in the 1980s to manage public finances. The government borrows money from the NIB to finance social expenditure, including education and healthcare, together with development projects.

However, this money, paid in by individuals, is not really public money, even though the government borrows it at lower rates of interest than those paid when it borrows from other lenders.

Since 2005, the funds have been placed under the authority of the Ministry of Finance, effectively making it public money that the government can use without referring to its depositors.

Moreover, the NIB has not paid interest on deposits for many years, depriving pensioners and other beneficiaries from money that could have been used to increase pensions or expand the beneficiary base.

Under the 2014 constitution this will change as pensions are described as “private funds, with the right to them and their revenues going to beneficiaries. They are safely invested and are managed by an independent authority,” the constitution says.

The total value of social security assets amounts to LE539 billion. It has been calculated that if the current interest rate on deposits was paid on all monies currently deposited with the government the total value of those deposits would be LE776 billion.

If the current interest rate on loans was added to this money, that amount would rise still further, to LE923 billion.

In 2013, the ministries of social insurance and finance agreed that the debts of the latter, incurred from social security funds, would be repaid over ten years by treasury bonds. The Ministry of Finance has already issued three bond issues to reimburse the debts.

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