Transcript Reforms Related to Public Pension Governance and Management

The Third Annual Public Pension Fund Management Conference
Washington, Sep. 20-22,2004
The World Bank
Reforms Related to Public Pension Governance
and Management of Investments.
MENA Countries : Jordan and Sudan
Mohammad M. Sartawi, CEO
Sartawi Consulting
( Management & Actuarial Consultants )
P.O Box 142212 Amman
11814 Jordan
E-mail: [email protected]
www.sartawi-consulting.com
1
Aug . 2004
Public Pension System In Jordan
1- Civil pension for civil servants employed
before 1/1/1995
2- Military pension for members of the armed
forces, public security, civil defense … etc
3- Social Security System for private sector
workers and civil servants hired since 1/1/1995
( Administered by the Social Security
Corporation SSC )
2
Jordan
Objectives of SSC
Provide social insurance to :1- Old – age, disability and death (yes)
2- work injuries and occupational
diseases(yes)
3- temporary disability due sickness or
maternity (no)
4- unemployment (no)
5- Health care insurance (no)
3
Jordan
SSC Main Indicators 2002/2003
* Establishment : 1/1/1980
* No of contributors : 400000 (27% of
Jordan's labor force )
* Pensioners 65000
Beneficiaries : 170000(includes pensioners)
* Total revenues (contributions + Investment
income = 371 million US Dollars ( 4% of
GDP)
4
Jordan
* Total expenditures = 200 million US
Dollars ( 2.15% of GDP)
*Total size of investment fund = 2.78
billion US dollars ( 24.5% of GDP)
5
Jordan
SSC Main Indicators
Financial Balance
Revenues, Expenditures and surplus
in million JD ( 1980 – 2023)
6
Jordan
7
Year
Contribution
Revenue
(1)
Investment
Income
(2)
Total
Revenues
(1+2)= 3
Total
Expenditures
(4)
Annual
Surplus
(3-4)
Size of
Investment
Fund
1980
4.7
0.104
4.8
0.309
4.49
4.5
1985
34.4
5.4
39.8
6.24
33.56
121
1990
50.5
25.4
75.9
20.3
55.56
357
2002
200
65
265
142
123
1674
2003
237
72
309
169
140
1929
2008
400
241
641
295
346
3170
2023
1758
939
2697
1788
909
12533
Jordan
Jordanian Social Security
Corporation Actuarial Studies
Baseline Scenario Results
8
Jordan
Study completion
date
(final report )
Period Covered
Break Even Point
BEP
Fund Deterioration
First actuarial
review
8/10/1982
21/5/1991-31/12/1981
2082
NA
Second actuarial
review
17/12/1988
1/1/1982- 31/12/1986
2041
2086
third actuarial
review
12/2/1993
1/1/1987-31/12/1991
2031
2072
fourth actuarial
review
25/3/1999
1/1/1992- 31/12/1997
2023
2043
Feb.2003
( draft final report )
1/1/1998- 31/12/2002
2017
??
Fifth
actuarial
review
9
Jordan
SSC Governance
- SSC is governed by a 15- member Board of
Directors ( Tripartite System)
- government reps = 7
- employers reps= 4
- employees reps = 4
- The Chairman of Board is the Minister of
labor
10
Jordan
-Terms of reference for employers and
employees reps is two years and cannot by
renewed more than twice consecutively
- Board resolutions requires a majority vote
- Board mandate is to manage SSC’s affairs
and supervise it’s activities
11
Jordan
Key duties of the BOD
- Defining general polices .
- Approving annual budgets and financial
statements.
- Final approval of the general plan for the
investment of reserves.
- Appointing actuarial experts to examine the
funding status of the scheme.
12
Jordan
- Appointing permanent and temporary
committees and defining their missions,
authority and remunerations.
13
Jordan
Director General
- SSC vice – chairman
- appointed by resolution of the Council of
Ministers upon the recommendation of the
Minister of Labor
- DG is directed to execute the polices
established by the BOD and implement its
resolutions.
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Jordan
SSC Reform
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Jordan
1- Policy measures introduced
that increase system cost
- Setting minimum pension policy
- increase accrual rate and pension salary
(all types of pensions )
- amendments of law 1/6/2001
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Jordan
2- Policy measures introduced
that rationalize system cost :
- Rationalization of early retirement
(June 2001).
- increase pension vesting period ( all types)
( June 2001) .
- increase contribution rate ( June 2001)
- increase cost of addition of past service
(Aug, 2004) .
17
Jordan
3- Policy measures that expand coverage, increase
revenues and improve administration
- Allow voluntary contribution
- Enrollment of Jordanian working abroad
- Allow more authorization to SSC inspection
personnel to control evasion and improve
collection efficiency
- Improvement and development of
administrative procedures
18
Jordan
- SSC is allowed to implement
complementary pension schemes sunder
certain regulation issued by the Council of
Ministers .
19
Jordan
4- Reform of governance : no
Change
20
Jordan
5- Reserve management reform
“Investment Reform”
- Separation of the investment function and
pension ( Insurance ) function by Creating
a specialized investment body called Social
Security Investment Commission (SSIC)
21
Jordan
SSIC
- SSIC was established by a regulation based
on the social Security law
- SSIC has bee established to be financially
and administratively independent body
- SSIC does not have a separate legal status
22
Jordan
SSIC
- SSIC has its own board of Directors a
classic tripartite structure with
representation from the Government ,
employees and private sector.
- SSIC Chairman of Board is nominated by
the Prime Minister . Three of seven
members are SSC reps
23
Jordan
SSIC
- SSIC started operation in 1/1/2003
- SSIC Board of Directors Supervise the
investment unit
24
Jordan
SSIC Primary Responsibilities
- propose investment policy.
- draft plans and programs to implement SSC
investment objectives .
- contract external investment managers .
- organization structures and staff needed.
- forming committees and determination of
there missions.
25
Jordan
-Evaluate performance of investment
portfolios .
- preparing activity and financial status
reports .
26
Jordan
SSIC Investment Objectives
- preserving and maximizing the real value of
scheme assets
- provide liquidity to finance pension
expenses
- reduce and manage risk through
diversification.
27
Jordan
SSIC Asset Classes
- Shares of listed and unlisted companies .
- assets of economically feasible projects
involving public and privates sector.
collaboration .
- Bonds and treasury bills .
- corporate bonds .
28
Jordan
- mutual investment funds
- time deposits ( banks)
- long – term loans
- real estate
- other investments as approved by SSC
Board of Directors .
29
Jordan
SSIC Overseas Investment
Investments outside Jordan are permitted with
the approval of the Council of Ministers
30
Jordan
SSIC Investment Policy
31
5- Year targets
05-25%
Fixed Income Securities
07 –30%
Listed Local Equities
17- 30%
Non –listed local Equities 08-20%
Loans
07- 15%
Real Estate
03- 15%
International Fixed Income 00-10%
International Listed Equity 00-02%
Money Market investments
32
longer term targets
10- 20%
15- 35%
25- 40%
10- 20%
10-20%
10-20%
05- 10%
00- 05%
Jordan
33
Public Pension System In Sudan
Two Schemes :1- The National Social Insurance Fund
(NSIF) for all private sector workers + all
government employees in public
organizations and institutions.
2- The Public Service Pension Fund (PSPF)
Covers all employees in the service of the
Government
34
Sudan
Objectives of NSIF&PSPF
Provide pension and social insurance to :1- Old – age, disability and survivors
2- retirement gratuity and work injuries
benefits 3- job termination
4- other compensations and benefits ( Death
subsidy grant , gratuities for services less
than 12 years ).
35
Sudan
Scheme Main Indicators
NSIF
1974
338000
Establishment
Contributors
Size of investment
fund
81 million Dollars
(0.46 of GDP ) (0.82 of GDP)
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PSPF
1994
345000
112million US Dollars
Sudan
NSIF Governance
- NSIF is governed by a classical structured
tripartite Board of Directors (BOD)
comprising of Government workers and
employers reps .
- In addition NSIF BOD include reps of
women and pensioners federation .
37
Sudan
- BOD is chaired by the Minister of Social
Care and Development .
38
Sudan
PSPF Governance
PSPF is governed by a classical structured
tripartite BOB including :
- Government
- Workers
- Employers
39
Sudan
NSIF + PSPF Reform
Governance
A) In 1994
- PSPF law amendment for 1994
- Establish a unified BOD for NSIF + PSPF
- BOD shall Consist of 14 members
* Minister is the supervisor of BOD
* Qualified chairman appointed upon the
recommendation of the Minister
40
Sudan
* government reps ( Ministry of Finance,
MOH, Ministry of Social Planning ,
Ministry of labor and Admin. Reform.
* Two Sudan Labor Union Reps
* Two employer reps
* Women Rep.
* Pension Federation rep .
41
Sudan
* DG’s of NSIF and PSPF
* Term of BOD is Three Years renewable
once
42
Sudan
Duties of unified BOD
- Defining general polices for NSIF+PSPF
- Approving annual budgets for NSIF + PSPF
and recommend for supervising Minister for
approval
- Final approval of financial accounts
- Final approval of annual reports prepared by
the DG’s of NSIF+ PSPF
43
Sudan
-Propose investment policy and plans for
NSIF + PSPF and recommend for the
Minister for final approval from the Council
of Ministers .
- Report to the Minister quarterly .
- Appointment of committees and defining
their missions.
44
Sudan
- The supervising Minister has the right to
review BOD resolutions before approval .
Such resolutions will become in effect if the
Minister dose not object within 15 days.
45
Sudan
Governance Reform
B) In 1998 / 1999
- Resolution to establish a unified BOD for
NSIF + PSPF was implemented .
- unified BOD was formulated and reps were
nominated
- In 2003 reps in the unified BOD were
nominated keeping the same structure of
1994 and 1998
Sudan
46
- In March 2003 unified BOD was
reformulated as follows ( 16 members ) :
- Chairman of Board ( appointed by
Minister’s Council ( Minister of Social
Care and Development )
Sudan
47
- 4 Government reps ( excluding the Minister )
- 2 labor union reps.
- 2 Employer reps .
- 1 pension union rep.
- 1 rep of Public Health Insurance Authority .
- DG of NSIF and PSPF.
- 3 Other Members .
Sudan
48
NSIF Law amendment
- Proposal for amendment of NSIF law 2003
- major amendment / reform include :
* Redefinition of deductible wage to include basic
salary plus all allowances.
* Extension of insurance coverage
* Formulation of BOD of NSIF explicitly in the
law
* impose fines and penalties when payment of
contribution is delayed
Sudan
49
* year for pension salary = last 3 years of
service .
* insurance a accrual rate from 2% to
2.25%.
* insurance maximum pension to 80% of
wage instead of 75% .
* transfer of financial reserves between NSIF
and PSPF .
Sudan
50
- A unified social insurance and pension law
for Sudan has been considered .
Sudan
51
Reform of Reserve Management
- unified BOD responsible for defining
investment policy ( 1998 and 2003)
- In third quarter of 2003 Sudan considered
the unification of investment strategies of
both NSIF+ PSPF
- Both NSIF and PSPF investment strategies
were reviewed taking into consideration
asset / liability
Sudan
52
- Three different models were considered :
* all surplus transferred to the Government.
* establish major investment companies
that will manage and invests the
surplus.
* establish separate / independent
investment body with separate
governance as ultimate authority.
Sudan
53
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