Employer action code: Monitor
Egypt's new social security and pension law will consolidate the social security system under a single program covering the informal sector as well as the public and private sectors. The government still has to develop implementing regulations to flesh out the new system in detail, but notable elements of the new system include: a new minimum pension, automatic annual indexation of pensions in payment by 15% and removal of the monthly covered wage ceiling on social security contributions.
Key details
- Pension benefits: A single pension benefit formula will apply to all workers. The minimum pension will equal 65% of the monthly minimum wage; the current minimum is a flat EGP 900 per month. Pensions in payment will automatically increase by 15% per annum (rather than adjusted on an ad hoc basis).
- Pension contributions: Employee and employer pension contribution rates will initially be 9.0% and 12.0%, respectively, levied on total pay. (Contributions are currently levied separately at 10% employee/15% employer on base and variable pay up to two different monthly pay ceilings.) The contribution rates for both parties will increase by 0.5% every seven years thereafter until reaching 26.0% in total.
- Normal retirement age (NRA): NRA will increase from age 60 to age 65 by 2040, beginning with an increase to age 61 as of July 1, 2032, then increasing by one year every subsequent two years. Eligibility for a pension at NRA will require a minimum of 15 years of insured employment (compared with 10 years now). Individuals claiming early retirement will need at least 25 years of insured employment (compared with 20 years now).
- Unemployment allowances and contributions: The reformed unemployment program will be financed by an employer contribution of 1.0% of payroll (2.0% under the current system). The unemployment allowance will be payable for up to 12 weeks initially, in four-week increments at 75%, 65%, 55% and 45% of covered pay, respectively. The maximum duration of payment will eventually increase to 28 weeks for individuals with at least 36 weeks of insured employment, the additional weeks payable at 45% of covered pay.
Employer implications
President Sisi signed the Social Security and Pensions Act into law on August 23, 2019, with an effective date of January 1, 2020; however, implementing regulations must be developed over the next six months, so the launch of the new system may be delayed. It also isn't clear how annual indexation of pensions will work in practice without stoking inflation; how the transition from the old to the new system will work, particularly with respect to benefits such as the employer and employee contributions for end-of-service (currently 5.0% of covered pay in total); or what minimum wage the system will be based on. Under the Labor Law, the National Wage Council must determine the monthly minimum wage for the private sector and create a mechanism for periodic adjustment of at least 7.0%, but to date only the minimum wage for the public sector (EGP 2,000 per month) has been established.
Under the Labor Law, the National Wage Council is supposed to determine the monthly minimum wage for the private sector and create a mechanism for periodic adjustment of at least 7.0%
Separately, the government also appears to be in the final stages of approving a new Insurance Act that will, among other things, create a legal framework for special insurance funds to provide retirement benefits under defined benefit, defined contribution or hybrid arrangements, the assets of which would be portable between plan types. Together with the new health insurance system being rolled out from 2018 to 2032 (January 2018 Global News Brief), the insurance environment in Egypt appears to be on the cusp of some fairly massive changes; however, it's not entirely clear what the full impact of those changes will be or when they will occur.
