Lebanese pensions: Save them, don’t tax them

Al-Akhbar is currently going through a transitional phase whereby the English website is available for Archival purposes only. All new content will be published in Arabic on the main website (www.al-akhbar.com).

Al-Akhbar Management

Teachers protest for higher wages in front of the Ministry of Education as part of the ongoing protests for higher wages for public sector employees. (Photo: Marwan Bou Haidar)

By: Faten Elhajj

Published Friday, April 25, 2014

The pension system is in danger. This is the sentiment prevailing among retirees in Lebanon, with reports that the government intends to amend the system and tax pensions. On Friday, retirees will hold a meeting to coordinate their next steps, but they have yet to come up with a strategy to resist the government’s plans.

The assault on the pension system for public sector employees began the moment the government and parliament began discussing funding for the proposed amendment to the public sector wage scale. At that time, the retirees were told that their pensions could become one of the funding sources, while a study by former Prime Minister Najib Mikati on the conditions for approving the new wage scale endorsed a proposal by the finance minister to amend some provisions in the retirement, severance, and income tax system to this end.

At the time, this proposal had shared features with another proposal made by the head of the Economic Committees, Adnan Kassar. Kassar wanted to completely alter this system and transform the concept of pensions into collaborative funds, where employees are given the same amount of money they invested contrary to the current system based on 6 percent contributions. Kassar back then made a hyperbolic statement, claiming that the pension system currently in place threatens to bankrupt Lebanon within ten years.

Shortly after, former Prime Minister Fouad Siniora took over the war on the pensions. In prepared remarks he made before parliament, he launched an attack on the retirees in Lebanon, whom he claimed to number 117,000, when the figures of the Ministry of Finance put them in the vicinity of 82,000. Siniora said, “the state pension system is the most generous in the world. The pension system in force in the military corps is unmatched by any other country in its generosity.”

In effect, it seems that many officials and even citizens believe pensions are a grant from the state, paid from its own pockets to the retirees to reward them for their sacrifices in service. This would thus mean that the state has the right to determine the amounts in its handouts and how to pay them.

However, the truth is completely different, according to the joint coordination body for public sector retiree associations. There is also a difference between employees’ salaries during active service and pensions. The salary is part of an employment contract and an implicit agreement between the state and the employee upon his or her appointment, in which the latter pledges to the state to fulfill his or her job responsibilities. The pension, however, is the result of pension deductions that the state takes from the salaries of the retirees during their active service, without any contributions from the state.

Successive Lebanese pension laws since 1929 have allowed for those deductions to be deposited into the treasury, to act as a retirement fund for public sector employees, pending the creation of a retirement fund, which requires a decree by the cabinet. Such a fund has yet to see the light of day, even though it has been mentioned in five different legislative acts, the most recent of which is the one numbered 47/83.

More importantly, deposited deductions are not the same as deposits in private banks, because the latter pay interest and preserve depositors’ ownership of the funds. By contrast, the Ministry of Finance pay interests in the form of pensions, but after the retiree’s death and the death of his or her heirs, the Ministry of Finance appropriates what is left of the deposit.

So how much exactly is deducted as pension contributions, and are they enough to cover pension payments without the state contributing?

Legally speaking, pension contributions usually consist of half of the first salary of an employee in active service with a 6 percent deduction from subsequent monthly salaries, and from any pay rises after that. This would be enough to pay the retiree a monthly interest on his or her funds from his or her contributions as a monthly pension payment, and this would be more than the state now pays as pensions for its retired employees.

If these deductions were to be invested or deposited in any bank or fund, or loaned to the state as usually happens for a period of 40 years without being withdrawn throughout that period, the interest paid on them would be no less than 12 percent. Based on the average salary for public sector employees, after forty years, the amount would accrue to about 396,922,118 Lebanese liras (L.L.) ($264,614). If the same amount is deposited in a bank, it would not pay less than 7 percent interest, or 2,315,000 L.L. ($1543) a month, or one and a half times the pension paid out by the state to retired civil servants at present.

This does not mean that there are no irregularities that public sector retirees must be prepared to discuss and address, to protect the pension system first and foremost. Such irregularities include abuse of pensions, which wives and the kin of deceased retirees inherit. For example, there have been cases of sham divorces involving wives and daughters of some MPs and senior government employees for this purpose. In addition, recent increases in the pensions of retired judges under the new scale pushed them to surreal levels.

Ultimately, retirees can act as a lobbying group, especially since many of them are often retained as consultants, and could be close to decision-making circles. So are there indications that this is in the works?

At present, there doesn’t seem to be plans for escalatory steps, or at least, this is what Othman Othman, the head of the joint coordination body for public sector retiree associations, has suggested to Al-Akhbar. He said, “We are not advocates of strikes and demonstrations. Instead, we use persuasive methods by putting forward facts to officials and the public.”

Osman elaborated on the reality of pensions in Lebanon, denying they had an impact on the national economy as long as they are paid out of the retirees’ past contributions. Osman also said that the state benefits from depositing these contributions into its treasury, to the tune of hundreds of millions of Lebanese liras. The retired major general then outlined the retirees’ demands as follows:

Equality in pensions paid to retired servicemen and women, and civilians.
Raising pensions from 85 percent of the last salary before retirement to 100 percent, like most countries in the world and Arab countries.
Pending the establishment of a special retirement fund, a permanent commission should be established to handle all affairs related to retirees and pension contributions, especially with respect to amendments to the pension laws, to be headed by the finance minister and members from the military and administrative sectors, especially representatives of the retirees.

This article is an edited translation from the Arabic Edition.


Post new comment

The content of this field is kept private and will not be shown publicly.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd><img><h1><h2><h3><h4><h5><h6><blockquote><span><aside>
  • Lines and paragraphs break automatically.

More information about formatting options

^ Back to Top