This is the second blog in a series looking at Social Protection challenges in Iraq. The
first blog
, focused on Iraq’s Social Safety Nets. This blog focuses on Iraq’s pensions systems.
A widow walks into the headquarters of the National Board of Pensions in Baghdad to collect pension arrears for her deceased husband. She is accompanied by her nephew, and all the documentation that could possibly be asked for by the clerk behind the desk. The process requires authentication of papers, issuance of a pension card, and then payment. Typically, this would take some three to four months.
The widow comes prepared, has all her papers (and patience) in order. She presents her papers at the front desk and is asked to wait. She patiently does so. An hour later she is called to the desk, handed her pension card, and the pension arrears. She collects her money and starts to walk away. She then turns and comes back to the clerk and hands him a wad of cash, thinking that this “express” service must have a “cost”. The clerk politely refuses and tells her to have a good day. She leaves with a smile on her face and an excited call to her children. Unbeknownst to her, the good folks at the pension office had put in place new mechanisms for payment: improved business flow, a network connecting the front desk with the back offices (accounting), and delegated “front lines” with approval responsibility.
While this is a very positive development for beneficiaries of the pension system in Iraq, there are still challenges to improve services in Baghdad and across Iraq. Most importantly, it requires reforming the system to be responsive to the current and future needs of Iraq. Pensions systems are one of the most difficult areas in any country to reform and always involve a long term process fraught with political and technical challenges. Iraq took a very important first step in this reform in 2007 with the enactment of the Unified Pension Law. However, with Iraq’s vast oil wealth, there has been pressure to move to a system of ad hoc pension salary setting that is now affecting the fiscal sustainability of the pension system.
Iraq continues to spend a large percentage of its budget on pensions. Pension payments represent one of the largest shares of social protection spending in Iraq and in 2010 more than 4 percent of Gross Domestic Product went to pensions for example. This is among the highest levels of spending in the region. Emergency policies that were implemented after April 2003 replaced regular pensions with emergency “flat” payments paid directly from the Ministry of Finance budget, with very limited contributions from employers and employees. At the same time, only around 25 percent of the total labor force in Iraq is covered by a mandatory pension system (most of these public sector workers). Only around two percent of the labor force in the private sector is actually covered. Therefore, there are now various calls for reform of the pension system, including full integration of the public and private sector scheme as one fund, and ensuring the system’s adequacy, affordability, and fiscal sustainability.
Iraq needs to be bold in introducing new legislation to provide a pension system for all Iraqis based on international best practices.The opportunity is now to make pension reform happen respecting the principles of affordability, fairness, sustainability, adequacy of the benefits, predictability, economic and administrative efficiency, and coverage. The aforementioned principles are not always in harmony with one another, and compromises are often necessary. Will future beneficiaries have adequate old-age income protection? Will the pension system be financially viable? Will beneficiaries still be able to show up at the pension office and receive prompt service free of “additional” costs like the widow we just met?
Share your thoughts with us.
A widow walks into the headquarters of the National Board of Pensions in Baghdad to collect pension arrears for her deceased husband. She is accompanied by her nephew, and all the documentation that could possibly be asked for by the clerk behind the desk. The process requires authentication of papers, issuance of a pension card, and then payment. Typically, this would take some three to four months.
The widow comes prepared, has all her papers (and patience) in order. She presents her papers at the front desk and is asked to wait. She patiently does so. An hour later she is called to the desk, handed her pension card, and the pension arrears. She collects her money and starts to walk away. She then turns and comes back to the clerk and hands him a wad of cash, thinking that this “express” service must have a “cost”. The clerk politely refuses and tells her to have a good day. She leaves with a smile on her face and an excited call to her children. Unbeknownst to her, the good folks at the pension office had put in place new mechanisms for payment: improved business flow, a network connecting the front desk with the back offices (accounting), and delegated “front lines” with approval responsibility.
While this is a very positive development for beneficiaries of the pension system in Iraq, there are still challenges to improve services in Baghdad and across Iraq. Most importantly, it requires reforming the system to be responsive to the current and future needs of Iraq. Pensions systems are one of the most difficult areas in any country to reform and always involve a long term process fraught with political and technical challenges. Iraq took a very important first step in this reform in 2007 with the enactment of the Unified Pension Law. However, with Iraq’s vast oil wealth, there has been pressure to move to a system of ad hoc pension salary setting that is now affecting the fiscal sustainability of the pension system.
Iraq continues to spend a large percentage of its budget on pensions. Pension payments represent one of the largest shares of social protection spending in Iraq and in 2010 more than 4 percent of Gross Domestic Product went to pensions for example. This is among the highest levels of spending in the region. Emergency policies that were implemented after April 2003 replaced regular pensions with emergency “flat” payments paid directly from the Ministry of Finance budget, with very limited contributions from employers and employees. At the same time, only around 25 percent of the total labor force in Iraq is covered by a mandatory pension system (most of these public sector workers). Only around two percent of the labor force in the private sector is actually covered. Therefore, there are now various calls for reform of the pension system, including full integration of the public and private sector scheme as one fund, and ensuring the system’s adequacy, affordability, and fiscal sustainability.
Iraq needs to be bold in introducing new legislation to provide a pension system for all Iraqis based on international best practices.The opportunity is now to make pension reform happen respecting the principles of affordability, fairness, sustainability, adequacy of the benefits, predictability, economic and administrative efficiency, and coverage. The aforementioned principles are not always in harmony with one another, and compromises are often necessary. Will future beneficiaries have adequate old-age income protection? Will the pension system be financially viable? Will beneficiaries still be able to show up at the pension office and receive prompt service free of “additional” costs like the widow we just met?
Share your thoughts with us.
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