IOPS COUNTRY PROFILE: EGYPT

IOPS COUNTRY PROFILE: EGYPT DEMOGRAPHICS AND MACROECONOMICS GDP per capita (USD) 6 200 Population (000s) 82 079 Labour force (000s) 26 100 Employment rate 90.3 Population over 65 (%) 4.5 Dependency ratio 1 14 Data from 2010 or latest available year. 1. Ratio of over 65-year-olds / labour force. Source: OECD, various sources. STRUCTURE OF THE PENSION SYSTEM EGYPT: COUNTRY PENSION DESIGN Source: OECD Global Pension Statistic January 2011 1

EGYPT: PENSION FUNDS DATA OVERVIEW 2001 2002 2003 2004 2005 2006 2007 2008 Assets Total investments (National currency millions) ND ND ND ND ND ND ND 21,847 Total investments, as a % of GDP ND ND ND ND ND ND ND 2.43 Of which Assets overseas, as a % of Total investment: Issued by entities located abroad ND ND ND ND ND ND ND ND Issued in foreign currencies ND ND ND ND ND ND ND ND By financing vehicle (as a % of Total investments) Pension funds ND ND ND ND ND ND ND 100.00 Book reserves ND ND ND ND ND ND ND ND Pension insurance contracts ND ND ND ND ND ND ND ND Other financing vehicule ND ND ND ND ND ND ND ND By pension plan type Occupational assets ND ND ND ND ND ND ND 21,847 % of DB assets ND ND ND ND ND ND ND 100.00 % of DC (protected and unprotected) assets ND ND ND ND ND ND ND 0.00 Personal assets ND ND ND ND ND ND ND ND Structure of Assets (as a % of Total investments) Cash and Deposits ND ND ND ND ND ND ND 26.82 Fixed Income ND ND ND ND ND ND ND 69.28 Of which: Bills and Bonds issued by the public and private sector ND ND ND ND ND ND ND 68.07 Loans ND ND ND ND ND ND ND 1.20 Shares ND ND ND ND ND ND ND 2.07 Land and Buildings ND ND ND ND ND ND ND 0.39 Other Investments ND ND ND ND ND ND ND 1.44 Contributions and Benefits Total Contributions, as a % of GDP ND ND ND ND ND ND ND 0.28 Employer Contributions, as a % of Total contributions ND ND ND ND ND ND ND 11.46 Employee Contributions, as a % of Total contributions ND ND ND ND ND ND ND 88.54 Total Benefits, as a % of GDP ND ND ND ND ND ND ND 0.30 % of benefits paid as a Lump sum ND ND ND ND ND ND ND 96.79 % of benefits paid as a Pension ND ND ND ND ND ND ND 3.21 Membership (in thousands of persons) 1 Total membership ND ND ND ND ND ND ND 4,660 % of Total active membership ND ND ND ND ND ND ND 100.00 Of which: % of Deferred membership ND ND ND ND ND ND ND ND % of Passive membership ND ND ND ND ND ND ND ND Other beneficiaries ND ND ND ND ND ND ND ND Number of Pension Funds/Plans Total number of funds ND ND ND ND ND ND ND 593 Total number of plans ND ND ND ND ND ND ND ND 1. Membership figures reflect membership rather than people. Therefore a person may be a member of more than one types of plan at any one time, particularly if the person has a number of employments in the year. ND = data not available NA = data not applicable Source: OECD, Global Pension Statistics January 2011 2

PUBLIC PENSION EGYPT: THE PENSION SYSTEM S KEY CHARACTERISTICS In Egypt, public pensions are provided through three mandatory social insurance schemes: Government Employees Pension Fund, Pension Fund for military personnel, Public and Private Enterprises Employees Pension Fund (PPEEPF). The PPEEPF also manages special schemes for employers and self-employed, individuals working abroad, as well as casual and informal sector workers. The schemes, depending on category of workers covered, also provide health, disability, death and other social welfare benefits. Alternative social insurance schemes could be established on a voluntary basis by companies employing at least of 100 workers and with total capital of EGP 10 million. The schemes are required to provide higher pension benefits than the PPEEPF with the contribution rates not exceeding the levels of the later. Egyptian banks, affiliated to international financial groups, operate most of such schemes. Egyptian public pension schemes operate as defined benefit schemes financed largely on a pay-as-you-go principle. The public pension schemes are managed by the government according to the pooling principle (i.e. the pension funds of the three schemes are pooled together). All pension reserves and accumulated surpluses are deposited and invested through National Investment Bank (which finances most of the government investment programmes). Coverage The public pension system provides coverage to almost all types of workers in the public and private sectors. The coverage rate is estimated to be more than 80 percent of the employed population, representing one of the highest levels among developing countries. Contributions In Egypt, contributions to the PPEEPF by public and private sector employees are paid on the basis of two different salaries: the basic salary (base pay of up to EGP 650) and the variable salary (base pay over EGP 650, plus various types of compensations). The monthly ceiling on earnings (basic and variable wages combined) for contribution and benefit purposes is set at the level of EGP 1150. Contributions rates to the scheme vary depending on each category of workers within the following limits: 13 percent of basic wage/ 10 percent of variable wage for insured persons; 17 percent of basic wage/ 15 percent of variable wage - for employer; with matching contributions made by the government at the rate of 1 percent (holding responsibility for any deficit).contributions for self-employed are calculated on the basis of 15 percent of the monthly income determined by the self-employed within the income range of EGP 50 to EGP 900. Benefits Eligibility conditions and the basis for calculating pensions vary depending rules governing each social insurance scheme. Usually, pension benefits are paid at age 60 after 120 months of contributions (basic wage pension) and at age 50 with 240 months of contribution (variable wage January 2011 3

pensions) 1. Early retirement pension is authorized after at least 240 months of contributions entailing the reduction of pension benefits. The pension benefits in each scheme are calculated in accordance with pre-determined formulas. The maximum pension is equal to 80 percent of the average earning, including basic and variable wages, during the last year before retirement or 920 EGP a month, whichever is less. The minimum pension of 100 EGP a month is paid to all citizens, including the unemployed. Public pensions are periodically adjusted on the basis of Government orders. One of the reform measures currently debated may include the proposal to develop a fixed formula to calculate the annual pension increase instead of increasing it each year by an arbitrary amount. OCCUPATIONAL VOLUNTARY Overview Voluntary occupational pension plans have been established in Egypt since 1975 known as Special Insurance Funds (SIF). In addition to pension payments, SIFs could provide a range of other benefits (marriage disbursement, disability, decease of the member, etc.) in accordance with the decision of a Fund s board of directors and approval by the Egyptian Insurance Supervisory Authority (EISA). All schemes have to obtain license from the EISA in order to legally operate in Egypt. Private pension schemes are established with no capital requirement and operate under the terms of internal rules set in line with the established regulations. The SIFs should be fully funded. The private pension schemes are managed by the board of directors, who are elected amongst scheme members at the annual general assembly. In case if an employer, partly or fully finances the pension scheme, the employer can also nominate, in line with the fund charter, members of the board. In addition, almost all trade unions in Egypt may sponsor occupational plans which provide flat-rate pensions (and under certain condition lump sum payments) to adherent members after the attainment of retirement age. The amount of pension paid varies among trade unions depending on resources accumulated (contributions paid and investment income) and the number of adherent members. The eligibility condition for trade union pension is regular contributions made on behalf of members until the attainment of retirement age. Coverage The law prescribes voluntary membership in SIFs, however, in practice, participation becomes quasi mandatory due to related mode of financing of most pension funds through specific allocations from companies activities surpluses. Membership in the pension fund is open 1 Different qualifying conditions for Egyptians working abroad pension could be claimed at age 60 with 180 months of contributions; and casual workers are entitled to receive pension at age 65 after 120 months of contribution. January 2011 4

to the employees belonging to the same occupation or company and respecting defined age limits (often between 18 and 45 years). Contributions The sources of financing of SIF consist of allocations determined by the establishing pension fund company, as well as members contributions, investment returns and any other sources decided by the fund s board of directors. Allocations to pension fund come out from a company s budget surpluses or other revenues related to its activities. Usually, a minimum amount allocated annually from the company resources to the pension fund is indicated in the regular actuarial reporting statement. Members contributions are determined either as a percentage of a basic salary (in both cases if the pension funds are established by an individual company or on industry basis) or can take form of a premium- usually paid on an annual basis which rate depends on the age of contributor (case of pension funds set by some trade unions or syndicates). Pension fund assets should be invested according to prescribed investment regulation. Of total fund assets: at least 25 percent must be invested in the securities guaranteed by the government; at least 60 percent must be invested in one of the following instruments: real estate, securities listed on the stock market (within the limit of 50 percent of accumulated reserves), bank deposits with fixed rate of return, providing loans to the members according to the Fund s internal rules, or any other investments with fixed return if approved by the EISA; no more than 50 percent should be invested in bank deposits. Benefits Benefits are paid mainly in a form of lump sums upon retirement and in case of decease and disability (periodic pension payments remain limited practice with the SIFs). Withdrawals prior to retirement are authorised under special circumstances (i.e.: marriage, medical treatment, relatives decease, etc.). Loans can also be offered to members by the SIF. Taxation The SIFs are exempted from all duties related to the registration and documentation of real estate transactions that a fund may conclude, as well as stamp duties related to funds activities. Real estate owned by a pension fund is tax free. Capital gains on funds investments in securities, loans and all type of deposits are tax-free; pension benefits paid to beneficiaries are tax exempted PERSONAL VOLUNTARY Information N/A January 2011 5

MARKET INFORMATION In Egypt, the government has comprehensively encouraged the development of occupational pension funds considered as an efficient vehicle to accumulate long-term domestic savings and extend old-age income protection beyond the prevailing public pay-as-you-go system. Over the years, the pension fund industry has been gaining in importance, registering progressive increase in number of funds and their adherents. As of beginning of 2009, the total assets under the management by private pension schemes were estimated to be reach EGP 23.9 billion. The total number of retirement plans in Egypt was 737, provided and managed by insurance companies. Total number of private pension schemes was 638, of which the dominant part (605) was operating as DB schemes and only 25 schemes were DC arrangements 2. POTENTIAL REFORM Over the past years, the Egyptian government has embarked on the pension reform process aiming to improve public pension funds performance and reinforce the administration and management capacity of private pension industry, as well as strengthen supervisory control over pension schemes. Recently two draft legislations, relating to social insurance and private pension funds, have been elaborated by relevant authorities and are currently awaiting the approval by the Parliament. A new social insurance draft law was introduced to the Parliament in November 2008, but is still under review process. The draft law aims to ensure sustainability of social security system by introducing more flexible regime governing the investment of public pension funds surpluses. The draft legislation proposes to allow investment up to 25 percent of pension fund surpluses in equities and other traded securities. Pension fund surpluses accumulated over the past years and deposited with the government National Investment Bank (NIB) in 2008 amounted to EGP 250 billion. Currently less than 1 percent of pension funds surpluses (about EGP 2 billion) has been invested in the stock market. Besides, a new pension draft legislation was prepared by the government and is expected to pass through the parliament in 2009. The proposed legislation requires the governing board of directors of private pension funds to acquire higher levels of expertise in the management of pension schemes, especially in relation to the asset management process. The new legislation further aims to reinforce the role of auditors and qualified actuaries in the pension risk management process and to strengthen reporting requirements by private pension entities. As a part of reform measures, innovative risk based approach to supervision of pension funds is expected to be introduced which further development should take into account international experience and agreed international guidelines elaborated in the area. KEY LEGISLATION REFERENCE INFORMATION 1954: Law N _ introduced the legislative framework for operation of public pension scheme in Egypt, covering permanent civil servants. 2 Presentation of Dr. Ali Al-Ashry at the OECD/IOPS Workshop on pension regulation and supervision, 2-3 February 2009, www.iopsweb.org. January 2011 6

1975: Law N 79 and its amendments govern the establishment and operation of the social insurance scheme for civil servants, employees in the private sector and employees in the public enterprises. 1975: Law N 54 and its amendments govern the establishment and operation of occupational voluntary private pension plans in Egypt and regulates their tax treatment. A separate bylaw within the legislative frame of the Law N 54 regulates asset management of pension funds. 1976: Law N 108 governs the establishment and operation of a special scheme for employers and self-employed persons 1978: Law N 50 prescribes regulations governing social insurance scheme for migrant workers 1980: Law N 64 governs the operation of special/alternative social insurance systems, under the supervision of the Ministry of Insurance and Social Affairs. 1980: Law N 112 regulates social insurance provision to casual and informal workers. KEY REGULATORY AND SUPERVISORY AUTHORITIES Ministry of Insurance and Social Affairs, responsible for efficient operation of social insurance system, manages some pension programmes within social assistance system and being parts of national poverty alleviation programme. National Social Insurance Authority, responsible of managing the pension and insurance system of both public (including government) and private sector s subscribers. The General Authority for Health Insurance oversees the provision of health care and treatment in cases of injury and sickness. Egyptian Insurance Supervisory Authority, responsible for licensing, supervision and control of the private pension funds, www.eisa.gov.eg. January 2011 7