Repair our pensions

Working for a brighter retirement

by Ibrahim Muhanna

As part of Executive’s ‘10 Ways to Save Lebanon’ issue, we asked leading figures from a range of fields to put the case for one major changes for the country. In this article, pensions expert Ibrahim Muhanna argues for better care for elderly people.


The quintessential goal of social security is to protect individuals against any financial risks they face throughout their working life and retirement. While risks of impoverishment in retirement pose special dangers for earners of low and lower-middle wages, the current National Social Security Fund’s End of Service Indemnity (NSSF EOSI) system provides little or no protection against poverty and the costs of deteriorating health throughout retirement.

Over the past four decades, the Lebanese Parliament has witnessed several draft bills aimed at reforming our current system into an old age pension scheme, yet none has reached the voting stage. The majority of these reforms have aimed to combat the numerous drawbacks of the EOSI system, chief of which is the payment of benefits in one installment, rather than in a secure stream of monthly pension payments.

In order to truly mitigate the risks of life in retirement, the average Lebanese citizen is expected to have the foresight, knowledge and financial capacity to plan for old age. This involves starting their own retirement plan during their working years, choosing to use the EOSI sum to purchase a life annuity from an insurance company and making the necessary plans for post-retirement healthcare.

To illustrate the limits of the EOSI system, let us imagine that there is a Lebanese individual who joins the workforce in 1994 aged 24 and retires in 2034 having worked at the same institution for 40 years. Assuming that their monthly salary increased from $240 in 1994 to $580 in 2014 and $1,400 in 2034, their EOSI payout will be roughly equal to $42,000. If this individual chooses to use the EOSI to purchase a life annuity, they would receive around $400 per month throughout retirement. This is barely 30 percent of their monthly income before retirement and, on its own, is insufficient cover for the individual, even just for the health risks after retirement.

All is not lost…    
Among the several pension reform plans put forward to the Cabinet, the ‘Muhanna Proposal’ maps the path for a reform of the current EOSI formula into an old age pension system that provides, among other benefits, a guaranteed minimum monthly pension, and allows for the establishment of a new post-retirement healthcare fund.

The costs of this reform are manageable and would be shared by employees, employers and the government, with the migration from the old to the new system designed in such a way as to avoid bureaucratic hiccups that are common in government-run institutions.

The need for pension reform has been acknowledged by each of the cabinets in the past decade. Proposals for a new system are based on extensive actuarial studies of the prevailing situation in Lebanon and offer a practical solution and important step forward. However, the much-needed reform has yet to be realized as each change in government resulted in a shelving and re-examination of the Muhanna Proposal.
This political delay in advancing to a pensions system has put extreme burdens on individuals who have reached retirement age. If it is not implemented soon, this will cause even greater burdens on individual citizens and the state budget, due to, among others, demographic factors and the rapidly expanding cost of health care for retirees.

On the bright side — and there is a bright side — unlike the current NSSF health care system, the NSSF’s EOSI branch has a substantial surplus of funds which is not being utilized. This surplus is neither the property of the government nor the NSSF; it is the property of the thousands of Lebanese whose contributions led to its formation. Put simply, herein lies the answer to the debate on what to do with the current EOSI surplus: partially use it in the creation of a pensions system. It’s time for reform.

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Ibrahim Muhanna

Ibrahim Muhanna is the managing director of i.e. Muhanna & co and president of the Lebanese Association of Actuaries

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