On June 13, the Egyptian Parliament passed a pension reform law that will replace the current public pay-as-you-go(PAYG) pension system with a system of individual accounts on January 1, 2012. Specific regulations concerning the system are due before Parliament by the end of 2010. According to the Ministry of Finance, the reforms are intended to encourage greater savings for retirement and improve the pension system's long-term sustainability. In the coming decades, the Egyptian population is projected to age rapidly because of improvements in life expectancy (from 71.1 years in 2010 to 77.7 years in 2050) and declining fertility rates (from 2.68 children per woman in 2010 to 1.92 in 2050). As a result, the share of the population aged 65 or older is projected to increase from 4.6 percent in 2010 to 13.1 percent in 2050—an increase that would place significant strain on the existing pension system.

Key elements of the new system include the following:

  • The contribution rate will be set at 16.5 percent of earnings for employees and 10 percent of payroll for employers. Employees will be able to make additional voluntary contributions.
  • The retirement age will increase gradually from age 60 at present to 61 by 2015, to 62 by 2018, to 63 by 2021, to 64 by 2024, and to 65 by 2027. The increase will affect all new entrants to the workforce on or after January 1, 2012.
  • A minimum pension—equal to 15 percent of the national average wage and funded from the state budget—will be available to all resident citizens of Egypt aged 65 or older, including individuals who have not contributed to the pension system.
  • A new investment board, expected to include specialized advisers and portfolio managers, will be created to administer and invest the assets from the individual accounts.

The current public PAYG program in Egypt covers approximately 80 percent of employed persons, one of the highest levels among developing countries. Contributions are based on two components: (1) base earnings, or earnings up to 775 Egyptian pounds (US$136) a month, and (2) variable earnings, or earnings exceeding 775 Egyptian pounds a month plus certain other forms of compensation, including bonuses, incentives, and commissions. Employees contribute 13 percent of base earnings and 10 percent of variable earnings, employers contribute 17 percent of base earnings and 15 percent of variable earnings, and the government contributes 1 percent of earnings plus the cost of any deficit.


Article with courtesy of Social Security Online 

Sources: World Population Prospects: The 2008 Revision, United Nations, 2008; Social Security Programs Throughout the World: Africa, 2009; "Egypt: Towards Reform,", June 2, 2010; "Egypt Pensions Draft in Parliament, Businesses Wary," Reuters, June 9, 2010; "Parliament Approves New Pensions and Insurance Law," Daily News Egypt, June 14, 2010; "Egypt Raises Retirement Age, to Introduce Jobless Benefits," Reuters, June 14, 2010; Ministry of Finance press release, June 29, 2010.
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