Post on 19-Dec-2015
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Management of Pension Funds in Jordan:
The Case of the Jordanian Social The Case of the Jordanian Social Security CorporationSecurity Corporation
Workshop on Options for Reform of Current Defined-Benefits PAYG Pension Systems
Malta, June 9-13, 2003
Organized by the World BankOrganized by the World Bank
Mohammad M. SartawyMohammad M. SartawyP.O.Box 142212P.O.Box 142212
Amman 11814 Jordan Amman 11814 Jordan e-mail: e-mail: mm_sartawy@yahoo.com
April 2003
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C o n t e n t s1.Jordan's Main Economic and Demographic Indicators
2.The Jordanian Social Security Scheme (JSSS).
3.Management and Operation of the JSSS
3.1 Objectives of the Social Security corporation of Jordan.
3.2 Governance.3.3 Organizational Structure3.4 Administration Costs3.5 Coverage3.6 Payment of Pensions and Other
Benefits4.Amendment of the Social Security
Law5.Management of the Investment Fund6.Scheme Funding and Financial
Balance
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*GDP : 7930 million U.S. Dollars
*GDP Growth(2000/2001): 4.18%
*Standard of Living (GDP per
Capita) : 1704 U.S.Dollars
*Discount Rate : 5%
Main Economic Indicators 2001
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*Average Wage: JD 230*CPI : 106.3 (1997 = 100)*Total labour force: 1.508
million of which 82% are Jordanian
*Participation Rate : 29.1%*Unemployment Rate among
Jordanians : 13.2%*Exchange Rate: 1JD = 1.412
U.S.Dollars.
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Population: 5.2 million (2001 estimates).
Population growth rate: 2.8%
Life expectancy : 69 male /
71 femaleCrude mortality : 5 per
thousandTotal Fertility : 3.5
Major Demographic Indicators:-
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The Jordanian Social Security Scheme
• (JSSS) was operated in the beginning of 1980 and is considered the third public pension fund in Jordan.
• JSSS is operated and managed by the Social Security Corporation of Jordan
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Old-age, disability and death.
Work injuries and occupational
diseases.
JSSS at present , providers two types of insurance:-
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JSSS also stipulates four other categories of insurance :-
Temporary disability due to sickness or motherhood.Health care insurance.Family allowances.Unemployment.
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The basic principles governing the JSSC Compulsory participation by the
employee and the employer. The scheme is self-financed. An important principle is that of
ensuring scheme continuity by maintaining a balance between revenues and expenditures.
Pensions provided by the scheme depend on the wage (Pension Formula).
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Objectives of the SSCJ*Providing pensions and compensation to workers thus satisfying their basic needs and achieving psychological stability to the workers.
*SSCJ aims at redistribution of income inter-and intra-generation, reducing poverty level in the country.
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*Creating a social compulsory
saving mechanism.
*Creating more job opportunities .
*Expanding the productive capacity
of the Jordanian economy.
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Governance
SSCJ has a juristic personality and
financial and administrative
independence. The corporation is
governed by a tripartite Board of
Directors (BOD) made up of
representatives of :-
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*The Government (five
members).
*The General Federation of the
Labor Unions (four members).
* The employers (four members).
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1.The management of the SSCJ affairs.
2.The supervision of its activities.
3.Approving annual budgets and end-of-
year financial accounts and balance
sheet.
4.Setting-up the general plan for
investing SSCJ funds.
The BOD The BOD responsibilitiesresponsibilities
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5.Determine the organizational charts,
job descriptions.
6.Drafting the necessary regulations and
proposing the legislations related to
the Social Security aspects.
7.Issuing executive and regulatory
financial, administrative and technical
instructions.
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Administrative Cost
YearMillion
JD
Cost per 100 JD
contributions
1997 - 5.4
2000 7 4.3
2002 8.7 4.1
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The SSCJ adopted a gradual
approach for implementing the
categories of insurances. SSCJ at present covers workers in
private sector establishment, all
workers and employees working for
ministries and organizations who are
not covered by the Civil or Military
Pension Schemes.
Coverage
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Contributors
Year Nos% of labour
force
1991 171000 18.6%
2002 412000 25%
2008 480000 --
2023 967000 --
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Payment of Pensions & Other Benefits
SSCJ has provided insurance benefits
to 470,000 beneficiaries (56000
pensioner, 245000 lump-sum
compensation and 169000
beneficiaries from the insurance for
work injuries and occupational
diseases). The total number of survivors has
reached 54000 at the end of 2000.
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JSSC expects the number of pensioners and survivors to increase to 120000 and 246000 in 2008 and 2023 respectively.
Total insurance benefits paid by JSSC since incorporation till end of 2001 reached 565 million JD (413 million JD pension salaries, 127 million JD compensations and the balance for work injuries compensations).
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Amendment Of Social Security Law
The following policy measures have been implemented during the period (1993 – 2000):-
• The minimum pension was raised from JD (480) to JD (600) a year as of 1/7/1993.
• Pensions were increased by (10%) (with a minimum of JD 15 and maximum JD 50) effective Jan. 1st, 1996, resulting in shifting the minimum pension from JD (600) to JD (780).
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Further amendments of SSL were introduced effective Jun, 1st 2001 including:-
1.Increase benefit factor from 2% to 2.5% for pensioners who already retired and those that will retire in the future.
2.Adjust the lower limit of the 10% pension increase effective since 1/1/1996 from JD 15 to 30, such adjustment shifted the minimum pension from JD 780 a year to JD 960 a year (equal to 94% of the minimum wage in Jordan).
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3. Increase disability and death pension as follows:-1% for each year if contributory
period is 120 months.0.5% for each year if contributory
period is 60 months.
4.Rationalization of early retirement for
males by increasing eligibility period
from 15 years to 18 years and by
applying the following pension
reductions:-
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Early retirement Age Pension Reduction
46 18%
47 16%
48 14%
49 12%
50 10%
51 9%
52 8%
53 7%
54 6%
55 5%
56 4%
57 3%
58 2%
59 1%
60 0%
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5.Increase contributions for old
age, disability and death
insurance from 13% (8% + 5%) to
14.5% (9% + 5.5%).
6.Increase old-age pension
eligibility from 10 to 15 years.
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Management Of The Investment Fund
1.Sound investment through preservation
of the assets and reserves , while
observing the principle of risk
distribution.
2.Maintaining the real value of investment
vis—vis inflation factor.
3. Increased self-reliance through the
realization of adequate profits capable of
balancing the revenues and obligations.
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4.Providing the liquidity necessary to
meet obligations through a balanced
distribution of investments based on
liquidity.
5.Contributing to the development of the
productive base of the national
economy through participation in
economically feasible projects that, at
the same time, have an appropriate
developmental dimension.
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The current asset allocation of the SSCJ is as shown below:-
ItemAsset
Allocation at the end of
2001
Shares in companies in various sectors
30%Loans of all types 15%Real Estate investments 5%Deposits in banks, bank accounts and treasury bills
50%
T o t a l 100%
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SSCJ project selection criteria based on social, economical and financial factors .
1.There are several economic, political
and legal factors that limit both
domestic and foreign investment
opportunities in Jordan. The domestic
investment function at the SSCJ is
performed under limited opportunities
due to the following reasons:-
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a.The financial market is thin.
b.Lack of opportunities of new projects
particularly in the industrial field since
the industrial base of Jordan is small.
c.Being a public sector body, the SSCJ
may face some pressure dictated by
certain requirements to pursue social
goals which limits investment returns.
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Separate investment function and insurance
function by establishing an independent
investment entity called Social Security
Investment Commission (SSIC) which has
its own BOD consisting of seven members
three of which are SSCJ representatives.
SSIC started operation on Jan, 2003.
Increase of investment return through
portfolio/Asset management contracts.
Improvement of the investment function by:-
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Upgrading internal human resources. Streamlining the investment decision
process to adjust to the amendments of laws and regulations (Security Law, Companies Law, Customs Law, ..etc) and the economic and political developments in Jordan and the Middle East region at large.
Review of investment policy and amend asset allocation taking into consideration medium and long-term obligations as well as demographic and economic factors.
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2.Follow-up and action plans on studies conducted to initiate major investment projects in the field of electricity generation and other strategic projects in order to bring those projects into reality (Mining & Downstream, Water, Touristic projects, IT, Privatization….etc).
3.Cooperation and coordination with concerned institutions to develop capital markets in Jordan.
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Scheme Funding And Financial BalanceSSCJ Revenues, Expenditures and Surplus 1980 – 2023
(million JD)
Year
Contribution
Revenue(1)
Investment
Return(2)
Total Revenu
e1 + 2 =
(3)
Total Expenditur
es(4)
Surplus(3 - 4)
Surplus/total
Revenue
Size of Investm
ent Fund
1980 4.7 0.104 4.8 0.309 4.491 93.6% 4.5
1985 34.4 5.4 39.8 6.24 33.56 84.3% 121
1990 50.5 25.4 75.9 20.3 55.6 73.2% 357
2002 200 63 263 142 121 46% 1800
2003 237 72 309 169 140 45.3%
2008 400 241 641 295 346 54% 3170
2023 1758 939 2697 1788 909 33.7% 12533
Note:
1. 1980 – 2002 : actual data
2. Data for 2003 are based on SSCJ budget
Data for 2008 – 2023 are based on SSSJ fourth actuarial valuation study
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In ConclusionIn Conclusion
SSCJ is strong in terms of efficiency in management and administration.
Contribution collection efficiency has improved significantly. There is still some room for improvement.
In-house analytical capacity has improved. Further specialties are needed (actuary).