The Uncertain Retirement in Lebanon: Increasing Life Expectancy, Change in population pyramid, and Absence of a State Pension Scheme.
Growing old without social protection or a state pension scheme in Lebanon: the rule rather than the exception!
This story is about Mohamad, and every other working Lebanese citizen, who have worked for the vast majority of their adult life and are now approaching retirement age. However, they do not have a state pension simply because their government failed to replace the current Lebanese “Temporary (1963)” End-of-Service compensation with a state pension scheme based on capitalization from employees’ contributions that would provide a safety net to retirees and elderly.
Globally, over the last 60 years life expectancy has increased noticeably, and Lebanon is no exception. A Lebanese born today has a life expectancy of 79 years. That is 16 years longer than someone born in 1960. The Crude Birth rate has dropped from 38.37‰ to 17.17‰ (between 1960-2020) and the Crude Mortality rate has dropped from 10.47‰ to 5.67‰ (between 1960-2020).
Improved healthcare and advances in medicine have increased life expectancy. At the core of this ordeal lies the fact that longevity imposes on retirees the fear of outliving their income: Running out of money during their retirement years, especially in a country like Lebanon where there is no state pension scheme that provides a safety net for the elderly.
In fact, our life expectancy increases with age. If a person attains 65 years, his life expectancy becomes 83.09 i.e., 6.87 more years. Today, the Lebanese National Social Security Fund, NSSF, provides an End-of-Service compensation which can be “used” before the retirement age and mainly for anything but retirement which defies the purpose of its presence.
A light at the end of the tunnel
The solution is to replace the current Lebanese “Temporary” End-of-Service compensation with a state pension scheme based on capitalization from employees’ contributions. In addition, the retirement age must be extended to 67 akin to Germany and France (you can opt to retire at 62 in France). Most importantly, the solution design must avoid the Pay-As-You-Go scheme which is doomed to bankruptcy due to inflation and population ageing.
In order to achieve a sustainable pension scheme the creation of a Three-Pillar Pension System should be adopted. This entails the following:
- The design of a new National Social Security Pension that serves as a safety net for retirees that is funded through the employee’s earnings
- An obligatory employer-and-employee pension scheme funded by at least 50% from the employer
- A supplementary (optional) individual pension scheme that the employee can buy
The above pillars should enjoy income tax relief at the highest marginal rate. In addition, the self-employed should benefit from tax exemption on the supplementary pension scheme as well (up to a certain limit).
Let’s take a look at Germany, Switzerland, and France!
All of these European countries have successfully implemented the Three-Pillar pension system that entails: a mandatory state pension, company or occupational pensions, as well as private pensions. It is critical to highlight that the Three-Pillar System is robust to ageing populations. The population ages 65 and above of the afore mentioned countries (% of total population) is 21.98%, 21.09%, and 19.39% respectively. Whereas Lebanon’s rate is 7.89%. This proves that Lebanon has a good chance of a successful implementation of this solution.
The newly elected young parliament members should address the old-age security bill, which was referred to the House of Representatives in 2004 and shelved ever since. Implementing this bill is crucial as it acts as a part of the reform that Lebanon should implement to recover from its financial crisis.
