Transcript Sartawi Consulting

Management of Pension Funds in Jordan:
The Case of the Jordanian Social Security
Corporation
Workshop on Options for Reform of Current DefinedBenefits PAYG Pension Systems
Malta, June 9-13, 2003
Organized by the World Bank
Mohammad M. Sartawy
P.O.Box 142212
Amman 11814 Jordan
e-mail: [email protected]
April 2003
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Contents
1. Jordan's Main Economic and Demographic
Indicators
2. The Jordanian Social Security Scheme (JSSS).
3. Management and Operation of the JSSS
3.1 Objectives of the Social Security
corporation of Jordan.
3.2 Governance.
3.3 Organizational Structure
3.4 Administration Costs
3.5 Coverage
3.6 Payment of Pensions and Other Benefits
4. Amendment of the Social Security Law
5. Management of the Investment Fund
6. Scheme Funding and
Financial Balance
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Main Economic Indicators 2001
*GDP : 7930 million U.S. Dollars
*GDP Growth(2000/2001): 4.18%
*Standard of Living (GDP per
Capita) : 1704 U.S.Dollars
*Discount Rate : 5%
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*Average Wage: JD 230
*CPI : 106.3 (1997 = 100)
*Total labour force: 1.508 million
of which 82% are Jordanian
*Participation Rate : 29.1%
*Unemployment Rate among
Jordanians : 13.2%
*Exchange Rate: 1JD = 1.412
U.S.Dollars.
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Major Demographic Indicators:-
Population: 5.2 million (2001
estimates).
Population growth rate: 2.8%
Life expectancy : 69 male /
71 female
Crude mortality : 5 per
thousand
Total Fertility : 3.5
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The Jordanian Social Security Scheme
• (JSSS) was operated in the
beginning of 1980 and is
considered
the third public pension fund in
Jordan.
• JSSS is operated and managed by
the Social Security Corporation of
Jordan
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JSSS at present , providers two
types of insurance:Old-age, disability and death.
Work
injuries
and
occupational
diseases.
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JSSS also stipulates four other
categories of insurance :Temporary disability due
to sickness or motherhood.
Health care insurance.
Family allowances.
Unemployment.
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The basic principles governing the
JSSC
 Compulsory participation
employee and the employer.
 The scheme is self-financed.
by
the
 An important principle is that of
ensuring
scheme
continuity
by
maintaining
a
balance
between
revenues and expenditures.
 Pensions provided by the scheme
depend on the wage (Pension Formula).
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Objectives of the SSCJ
*Providing
pensions
and
compensation to workers thus
satisfying their basic needs and
achieving psychological stability to
the workers.
*SSCJ aims at redistribution of
income inter-and intra-generation,
reducing poverty level in the
country.
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*Creating a social compulsory
saving mechanism.
*Creating more job opportunities .
*Expanding the productive capacity
of the Jordanian economy.
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Governance
SSCJ has a juristic personality and
financial
and
administrative
independence. The corporation is
governed by a tripartite Board of
Directors (BOD) made up of
representatives of :M. Sartawy
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*The
Government
(five
members).
*The General Federation of the
Labor Unions (four members).
* The employers (four members).
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The BOD responsibilities
1.The management of the SSCJ affairs.
2.The supervision of its activities.
3.Approving annual budgets and end-ofyear financial accounts and balance
sheet.
4.Setting-up
the
general
plan
for
investing SSCJ funds.
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5.Determine the organizational charts,
job descriptions.
6.Drafting the necessary regulations and
proposing the legislations related to
the Social Security aspects.
7.Issuing
executive
and
regulatory
financial, administrative and technical
instructions.
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Administrative Cost
Year
Million
JD
Cost per 100
JD
contributions
1997
-
5.4
2000
7
4.3
2002
8.7
4.1
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Coverage
 The SSCJ adopted a gradual
approach for implementing the
categories of insurances.
 SSCJ at present covers workers in
private sector establishment, all
workers and employees working for
ministries and organizations who are
not covered by the Civil or Military
Pension Schemes.
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Contributors
1991
% of labour
Nos
force
171000
18.6%
2002
412000
25%
2008
480000
--
2023
967000
--
Year
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Contribution Revenue
Year
Million JD
1991
56
2002
209
2003
237
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Payment of Pensions & Other Benefits
 SSCJ has provided insurance benefits
to 470,000 beneficiaries (56000
pensioner,
245000
lump-sum
compensation
and
169000
beneficiaries from the insurance for
work
injuries
and
occupational
diseases).
 The total number of survivors has
reached 54000 at the end of 2000.
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 JSSC expects the number of
pensioners and survivors to increase to
120000 and 246000 in 2008 and 2023
respectively.
 Total insurance benefits paid by JSSC
since incorporation till end of 2001
reached 565 million JD (413 million JD
pension salaries, 127 million JD
compensations and the balance for
work injuries compensations).
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Amendment Of Social Security Law
The following policy measures have been
implemented during the period (1993 –
2000):-
• The minimum pension was raised from
JD (480) to JD (600) a year as of
1/7/1993.
• Pensions were increased by (10%)
(with a minimum of JD 15 and
maximum JD 50) effective Jan. 1st,
1996, resulting in shifting the minimum
pension from JD (600) to JD (780).
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Further amendments of SSL were introduced
effective Jun, 1st 2001 including:-
1.Increase benefit factor from 2% to 2.5%
for pensioners who already retired and
those that will retire in the future.
2.Adjust the lower limit of the 10%
pension increase
effective
since
1/1/1996 from JD 15 to 30, such
adjustment
shifted
the
minimum
pension from JD 780 a year to JD 960 a
year (equal to 94% of the minimum
wage in Jordan).
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3. Increase disability and death pension as
follows:1% for each year if contributory
period is 120 months.
0.5% for each year if contributory
period is 60 months.
4. Rationalization of early retirement for
males by increasing eligibility period
from 15 years to 18 years and by
applying
the
following
pension
reductions:M. Sartawy
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Early retirement Age
Pension Reduction
46
18%
47
16%
48
14%
49
12%
50
10%
51
9%
52
8%
53
7%
54
6%
55
5%
56
4%
57
3%
58
2%
59
1%
60
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25
5.Increase contributions for old
age,
disability
and
death
insurance from 13% (8% + 5%) to
14.5% (9% + 5.5%).
6.Increase
old-age
pension
eligibility from 10 to 15 years.
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Management Of The Investment Fund
1. Sound investment through preservation
of the assets and reserves , while
observing
the
principle
of
risk
distribution.
2. Maintaining the real value of investment
vis—vis inflation factor.
3. Increased self-reliance through the
realization of adequate profits capable of
balancing the revenues and obligations.
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4. Providing the liquidity necessary to
meet obligations through a balanced
distribution of investments based on
liquidity.
5. Contributing to the development of the
productive base of the national
economy through participation in
economically feasible projects that, at
the same time, have an appropriate
developmental dimension.
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The current asset allocation of the SSCJ
is as shown below:Asset Allocation at
the end of 2001
Item
Deposits in banks, bank accounts and
treasury bills
30%
15%
5%
50%
T o t a l
100%
Shares in companies in various sectors
Loans of all types
Real Estate investments
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SSCJ project selection criteria based on
social, economical and financial factors .
1.There are several economic, political
and legal factors that limit both
domestic and foreign investment
opportunities in Jordan. The domestic
investment function at the SSCJ is
performed under limited opportunities
due to the following reasons:M. Sartawy
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a.The financial market is thin.
b.Lack of opportunities of new projects
particularly in the industrial field since
the industrial base of Jordan is small.
c.Being a public sector body, the SSCJ
may face some pressure dictated by
certain requirements to pursue social
goals which limitsM. Sartawy
investment returns.
31
Improvement of the investment function by: Separate investment function and insurance
function by establishing an independent
investment entity called Social Security
Investment Commission (SSIC) which has
its own BOD consisting of seven members
three of which are SSCJ representatives.
SSIC started operation on Jan, 2003.
 Increase
of
investment
return
through
portfolio/Asset management
contracts.
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 Upgrading internal human resources.
 Streamlining the investment decision
process to adjust to the amendments of
laws and regulations (Security Law,
Companies Law, Customs Law, ..etc) and
the economic and political developments
in Jordan and the Middle East region at
large.
 Review of investment policy and amend
asset allocation taking into consideration
medium and long-term obligations as well
as demographic and
economic factors.
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2.Follow-up and action plans on studies
conducted to initiate major investment
projects in the field of electricity
generation and other strategic projects
in order to bring those projects into
reality (Mining & Downstream, Water,
Touristic
projects,
IT,
Privatization….etc).
3.Cooperation and coordination with
concerned institutions to develop
capital markets in Jordan.
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Scheme Funding And Financial Balance
SSCJ Revenues, Expenditures and Surplus 1980 – 2023 (million JD)
Year
Contributi
on
Revenue
(1)
Investme
nt Return
(2)
Total
Revenue
1+2=
(3)
Expenditures
1980
4.7
0.104
4.8
1985
34.4
5.4
1990
50.5
2002
Surplus
(3 - 4)
Surplus/tot
al Revenue
Size of
Investme
nt Fund
0.309
4.491
93.6%
4.5
39.8
6.24
33.56
84.3%
121
25.4
75.9
20.3
55.6
73.2%
357
200
63
263
142
121
46%
1800
2003
237
72
309
169
140
45.3%
2008
400
241
641
295
346
54%
3170
2023
1758
939
2697
1788
909
33.7%
12533
Total
(4)
Note:
1.
1980 – 2002 : actual data
2.
Data for 2003 are based on SSCJ budget
Data for 2008 – 2023 are based on SSSJ fourth actuarial valuation study
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In Conclusion
 SSCJ is strong in terms of
efficiency in management and
administration.
Contribution collection efficiency
has improved significantly. There is
still some room for improvement.
In-house analytical capacity has
improved. Further specialties are
needed (actuary).
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 Investment funds are adequately
managed and the scheme is achieving
financial balance till the end of the 1st
quarter of the century.
 Financial management is efficient and
law amendment would facilitate in
collecting the money owed to SSCJ
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