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Pension Apprehension: Lawmakers Want Worker Pensions to Pay Down Government Debt
By Summer Said, Cairo Magazine
Egypt
August 5, 2005
In mid-May, Prime Minister Ahmed Nazif announced that LE600 million would be added to the Social Insurance Fund budget, raising the average monthly pensions of the poorest Egyptians from LE60 to LE80.
The move, which would help more than 600,000 families, came as part of government efforts to improve living standards by stabilizing prices, increasing salaries and creating jobs.
The reality, however, is that an additional LE20 will be meaningless to many of the country's pensioners, who critics say face a life of penury unless urgent reforms are made to the country's pension system.
Despite the money recently pumped into the accounts by the Nazif government, as well as constitutional guarantees, retired Egyptians may not be able to claim their monthly payments in the future, according to officials at the Egyptian Center for Economic Studies. Workers' retirement funds are under assault by lawmakers who seek to tap into the LE174 billion pension fund to pay down government debt. This marks a continuing trend of borrowing from the Social Pensions Authority (SPA) to finance the ever-growing public debt. Since the SPA is controlled by the government, it can hardly refuse.
Proponents argue that paying down state debts should be a national priority. But Hassan Al Borei, a professor of law at Cairo University, says the government's scheme violates the law.
"It would constitute a confiscation of private money," he said. "Without a say in the management, people would have no guarantee over those assets."
There is opposition to the plan from within the government's own ranks. Social Affairs Minister Amina Al Guindi announced that she was against the government proposal to swap debt for equity. "The pension money is not related to the budget because it is owned by pensioners," she said. Analysts say the scheme to swap debt for equity in public sector companies-many of which are insolvent-would merely give the pension fund paper ownership of worthless stock.
Official statistics claim that four million Egyptians receive pensions of less than LE100 per month. Many of these people are owed higher pensions. The ministry report says the previous pension system, in which retired employees were fully compensated according to their years of work and salary, must be reintroduced if future pensioners are to do any better.
Unlike Europe's system, the Egyptian pension fund is not on the stock market. In the early 1990s, large amounts of money were withdrawn from the fund to pay for early retirement packages for employees of privatized companies.
Economics experts have criticized the current pension system. Increasingly, workers are refusing to contribute to their retirement funds. A simple cost-benefit analysis, they say, just doesn't add up.
"You cannot imagine the amount of money we pay for the pension fund every year and the amount of money we get at the end. It is pathetic," said Mohammed Ibrahim, a 43-year-old teacher. "Every one of us pays around 40 percent of our basic salary each month and 25 percent of the variable salary, and at the end we take a few pounds as pension."
These sentiments were echoed by Ashraf Sayyed, who recently advised his daughter not to pay into her government pension. "If she put the money she pays every month in a bank, she will definitely save much more than the government will give her when she retires," said Sayyed. "I think many people have already figured out that they have been tricked by the government, and the number of employees contributing will decline drastically in the next few years."
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