Middle East pensions need urgent reforms: with increases in life expectancy, pensions are becoming a pressing issue everywhere. A World Bank report highlights the urgent need for reform in the MENA region.

Author:Feller, Gordon
Position::BUSINESS & FINANCE
 
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PENSION SYSTEMS IN THE MIDDLE East and North Africa (MENA) are under growing financial stress and urgently need reform, according to a new World Bank report. The report Pensions in the Middle East & North Africa: Time for Change is the first ever regional review of more than 30 pension systems in 13 countries (see footnote)--calls for a series of measures that would allow governments to gradually reform their unsustainable pension systems, and by doing so avoid future crises.

According to the new report, pension systems in the region face problems in terms of limited coverage, fragmented administration, and system design that negatively affect incentives and equity. The report suggests that pensions systems try to offer too much in terms of benefits. On average, full-career workers would receive a pension of nearly 80% of earnings before retirement.

This is much higher than the pension promise in 24 high-income countries (as well as ten countries in Eastern Europe and Central Asia and nine countries in Latin America and the Caribbean), where pension represents on average 57% of pre-retirement earnings.

"Pension crises are often associated with an ageing population, which is misleading. In the MENA region, where 60% of the population is made up of young people, pension systems are already facing financial problems," says Christiaan Poortman, World Bank Vice President for MENA.

"So, the problem is structural, not demographic. The time for change is now. Postponing pension reforms will require dramatic adjustments in the future and it implies transferring the cost of reform to future generations," he adds.

Progress on pension reform has been uneven across the MENA region. Some countries like Algeria, Libya, and Syria are in the very early stages of the reform process or have not yet initiated discussions. In other countries like Iran, Iraq, Tunisia, and Yemen, policy discussions are more advanced but a coherent strategy has yet to emerge.

Djibouti, Egypt, Jordan, Lebanon, Morocco, and the West Bank and Gaze, on the other hand, have made strides in pension reform, drafting progressive pension laws or introducing structural reforms.

The report urges countries in the early stages of reform to conduct a proper assessment of the financial problems facing the systems. Without this baseline, it is not possible to initiate discussions about the costs and benefits of alternative reform packages. In other countries, the immediate goal is to move from...

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