THE CASE OF SAUDI ARABIA

INTRODUCTION OF THE GROUP Members of the group 1) Majid Alfarsi (Actuarial Analyst, Ministry of Defense Pension Fund, Oman) 2) Jaser Aljaser (Specialist Actuary, Public Pension Agency, Saudi Arabia) 3) Abdullah Albahouth (Statistician Specialist, Public Pension Agency, Saudi Arabia) 4) Ghassan Alkhoja (Sr. operations officer, World Bank, Lebanon) 5) Zaina Dawani (Iraq Pension Reform Project Coordinator, World Bank, Lebanon)

COUNTRY DEMOGRAPHIC AND ECONOMIC CHARACTERISTICS Population growth rate among the population in 2004 and 2010 census Population 2010 (people) GDP growth at constant prices 2009 The contribution of the private sector in GDP at constant prices 2009 Per capita GDP at current prices in 2009 (SAR) Growth rate of GDP per employed person (2008) The proportion of the working population to population (2009 m) Rate and infant mortality (per thousand live births) 2009

3,2 % 27,136,977 0.6 48% 52,853 19.3 32.1 14

Fertility The population projection starts with a total fertility rate of 3.35 children per woman in 2005, decreasing gradually to 1.85 children per woman in 2050, remaining constant at 1.85 thereafter. The ratio of male births to female births is set at 1.03 for the whole projection period. Mortality life expectancies at birth of 70.9 years for males and 75.3 years for females in 2005. These figures gradually increase to 79.4 years for males and 84.3 years for females in 2070.

COUNTRY DEMOGRAPHIC AND ECONOMIC CHARACTERISTICS Demographic structure/aging patterns (2009 & 2050)

EXISTING PENSION SYSTEM Brief history of existing system: 

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PPA established under the name of "Retirement Pension Directorate" on 1958 under Article #8 of Pension Law issued at the same year. PPA administrate two pension schemes (Civilian and Military), both schemes covers Saudi employees only who occupy a job in the state budget or public institutions budgets. Cabinet decision # (277) dated 30/12/1424H (20/2/2004) transferred Retirement Pension Directorate to Public Pension Agency (PPA). PPA now is a public entity characterizes by independent management, finance and budget. It is located in Riyadh and connected with Minister of Finance administratively. PPA implements military and civilian schemes terms.

EXISTING PENSION SYSTEM System design features: Retirement pension Salary

Accrual

Max

Minimum

Annual Increase

Eligible Beneficiaries

No

Spouse, children, parents, brothers, sisters, grandparents and children of a pensioner’s son who died before him. Except for the spouse and children, other dependants must establish that the pensioner provided for their needs before his death.

2.5% * Years of contribution (a maximum of 40 years) Last salary in PPA *For GOSI it the average of the last 2 years

100%

2.86% * Years of contribution (a maximum of 35 years)

1725 S.R (460$)

EXISTING PENSION SYSTEMS scheme

Membership

All Saudi nationals who Civil employees work for a public service or a And private sector with GOSI general agency. All private sector employees

Contribution Rate Employee

Employer

9%

9%

Government

Retirement Age Early Retirement

60

25 (20 years of service with approval)

Any Deficit

Military sector

All Saudi militaries

9%

13%

According to 18 (15 years of grade - from Age service with 44 to age 58 approval)

EXISTING PENSION SYSTEM System

PPA

GOSI

Contributors

Above 1.5 million

About 790,000

Number of Pensioners

495,000

100,000

Beneficiaries

520,000

About 130,000

Benefits

more than 8,000 million dollar (2009)

About 1,900 million dollar (2009)

DESCRIPTION OF REFORM NEEDS Lack of financial sustainability  Very generous system (for ex. maximum replacement rate is 100%)  Encourages early retirement and exit from the labor market  Ad hoc increases in pensions  Lack of control over disability pensions/benefits  Limited mobility across the public and private pension schemes  Lack of transparency 

SAMPLE CASE: EXISTING PENSION PATTERN FOR OLD-AGE RETIREMENT AND EARLY RETIREMENT 5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0 20212223242526272829303132333435363738394041424344454647484950515253545556575859 -1,000,000

-2,000,000

-3,000,000

-4,000,000 cont. + int. 3

pension3

cont. + int. 2

pension2

DISCUSSION OF ENABLING CONDITIONS Raising awareness among politicians as well as the public  Raising/building capacity of boards and administration  Agreements that pension funds should be self-financed 

DISCUSSION OF REFORM OPTIONS Parametric reform to include:  Gradual increase of retirement age  Gradual increase of vesting periods  Introducing penalties for early retirement  Exponential accrual rate  Change of reference wage  Strengthening means of verification with respect to disability pension

TECHNICAL FEASIBILITY OF REFORM OPTIONS Too early to assess the technical feasibility, but the following steps are proposed for conducting a feasibility assessment:  To focus on awareness raising using simplified models which can demonstrate the lack of sustainability of the existing system  To develop several reform options with the assistance of actuarial analysis/advisors  More transparency would be needed on implicit pension liabilities

PROPOSED COALITION/CONSENSUS BUILDING STRATEGY Starting with the Boards and administration (staff)  MoF and other concerned ministries  Consultative councils (Parliament)  Press and media  International organizations 

COMMUNICATION/PUBLIC INFORMATION STRATEGY Emphasizing the importance of work in economic, social and religious terms  Innovative ways to focus on/reach the new beneficiary groups of the reform  Tailoring messages to different target groups  Utilize the press/media for conveying messages 

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