Lebanon’s Pension System: A Law on Paper?
The ink may be dry on the law, but the reality of Lebanon’s new pension system paints a far more complicated picture. Despite being ratified by the Parliament in 2023 and published in the official gazette, the law on the retirement system and social protection remains largely unimplemented. This delay raises serious questions about its viability and the future of social security in Lebanon.
Implementation Roadblocks
According to the source, Annahar, several decrees are required for the law’s implementation, with only one of the thirteen decrees issued so far. This decree relates to the most representative bodies of the Social Security Board, which should have been appointed before June 22, 2024. Furthermore, the names of the candidates were sent to the Civil Service Council, which reportedly rejected some candidates due to qualifications or representation balance issues. As Minister of Labor, Mohammad Haidar, confirmed to Annahar, the system is “on track,” and the implementation of the application decrees is underway, with the Social Security Board being the first to be appointed.
A critical hurdle lies in the absence of an actuarial study to determine the contribution rates needed to ensure the system’s financial balance. This study was supposed to be completed within the first three months of the law’s issuance, but it remains unfinished. As Rفيق Salama, a board member, points out, any pension system must be built on a detailed actuarial study that considers the national economy’s capacity to bear its burdens. The new system was approved without such a study, and amid a severe economic contraction.
Financial and Structural Challenges
Several structural and financial challenges could hinder the implementation of the retirement and social protection system. One major issue is the inability to rely on old individual accounts for settling rights due to the lack of daily updates and incomplete records. The absence of annual nominal declarations further complicates the reconstruction of accurate individual accounts, potentially leading to massive financial obligations. These obligations could reach $3 billion, placing a heavy burden on institutions.
The financial situation of the Social Security Fund, particularly the end-of-service compensation branch, poses another significant challenge. Between 2018 and 2024, the fund’s assets decreased from $8 billion to less than $1 billion. This represents a financial gap of approximately $7 billion, or an 87.5% loss. The new pension system relies on virtual individual accounts, which require transparent and digitized management. However, the current administration of the fund suffers from organizational weaknesses. There have been no general budgets since 2017, no audited accounts since 2010, and no comprehensive digitization since 2003.
Demographic and Economic Concerns
The demographic challenge adds another layer of complexity. According to a report by the International Labour Organization, Lebanon is heading towards rapid population aging, which will increase the number of retirees and the length of their pension benefits. The new law, however, did not take these factors into account. It set the retirement age at 64 years and the contribution period at only 15 years, while the average life expectancy after retirement is 19.25 years. This discrepancy creates a structural imbalance between contributions and pensions.
Needed Reforms
Rفيق Salama stresses the need for urgent reform steps before implementing the new pension system. These include:
- Commissioning an independent body to audit the fund’s accounts and determine the true financial situation.
- Restructuring the fund by changing its reporting and executive leadership and updating its administrative and informational infrastructure.
- Reconsidering the financing of the system and seriously discussing the feasibility of relying on individual capitalization versus pay-as-you-go financing.
- Starting from a sound demographic and economic reality to develop a new vision characterized by flexibility and sustainability.
In conclusion, while the new pension law represents progress, its successful implementation faces significant obstacles. Addressing the financial, structural, and demographic challenges is crucial to ensure the system’s long-term viability and provide social protection for Lebanon’s aging population.
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