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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. 14 Jordan SSC Reform 15 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 16 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) 36 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 54