Pensions Raised by 10 Percent

In application of Article 27 of the Egyptian Constitution and in response to the mounting economic distress, the Egyptian parliament has recently enacted an amendment (the “Amendments”) to a number of legislations governing social insurance in the country. The Amendments set a general minimum pension and introduce a 10 percent raise on all pensions, which shall be fully funded by the state treasury.

Scope and Nature of the Raise

The Egyptian Parliament issued the Law No. 60 of 2016[1] approving a pension raise of 10 percent upon all types of pensions. The legislator has utilized simple guidelines to facilitate the process of calculating the raise due, using the accumulated pension due on June 30th 2016 as the base for calculating the 10 percent raise. In addition, the Amendments set a minimum for the raise of EGP 125 in the case of persons who are addressed by the Social Insurance Law.[2] In the same paragraph, the Amendments allowed the pension raise to exceed the lower limit entitling the pension holder to the receipt EGP 500 starting from July 2016. However, the pension increase shall not exceed 10 percent of the monthly maximum social insurance subscription threshold. The following example clarifies the raise’s maximum in the case of persons addressed by the Social Insurance Law No. 79 of 1975:

• Maximum raise = (Monthly Maximum Social Insurance Subscription x 10%)

As per the Social Solidarity Ministerial Decree No. 126 of 2014[3] governing the means of calculating subscription wages, the maximum threshold shall increase by 15 percent annually on January 1st. Hence, the monthly maximum subscription threshold for 2016 is EGP 3,230 resulting in a maximum raise for the same year of:

• Maximum raise for 2016 = (3,230 x 10%) = EGP 323

The Amendments also sought to enforce the constitutional obligation prescribed in Article 27 of the Egyptian Constitution. The Amendments introduced a minimum general pension of EGP 500 benefiting all subjects of Egyptian social insurance laws including Employers and Equivalents governed by Law No. 108 of 1976[4] and Egyptian Employees Abroad governed by the Law No. 50 of 1978.[5] Thus, the legislator secured equality with the lower pension limit as per the Social Insurance Law No. 79 of 1975. Article 3 has obliged the State’s Treasury to bear the fiscal burdens of funding all the approved raises.

Amending the Social Insurance Subscription Rules

Article 4 of the Amendments also changed the definition of the Social Insurance Subscription. To understand such amendment, it is beneficial to refer to the definition of the social insurance subscription as stipulated in Article 5 of the Social Insurance Law. This subscription is based on two components, the basic and the variables wage. The basic wage is the one explicitly provided in employment contracts for employees’ subject to the Labour Law No. 12 of 2003.[6] On the other hand, the variable wage covers all the remaining payments received by the insured in terms of allowances, incentives, bonuses, etc. Adding these two components results in the total subscription wage, which provides the basis for the calculation of the amount of subscription owed for the purpose of social insurance services, as per the Law No. 79 of 1975. Subscriptions are paid to the National Authority for Social Insurance through contribution from both employees and employers. From the employees’ side, the insured has to contribute 14 and 11 percent of the basic and variable wages respectively. For employers, the contribution is 26 and 24 percent of the total basic and variable wages respectively remunerated to insured employees. It is worth mentioning that the employer is under obligation to withhold and remit the employees contribution due to the competent Authority. The amendment of Article 5 of the Social Insurance Law and in specific paragraph (i) has set for the first time EGP 400 as a minimum threshold for the monthly subscription for both basic and variable wages. The former minimum threshold applicable prior to 2016 was EGP 160 representing only the minimum basic wage, which used to increase 10 percent annually each July as per the Ministerial Decree mentioned above. Consequently, this amendment has abolished any linkage between the minimum wages and the monthly minimum subscription threshold. Furthermore, this minimum limit shall increase by 25 percent annually for five years. Afterwards, this annual increase shall decrease to 10 percent. Thus, the law has exempted insured employees falling below the monthly minimum threshold from continuously complying with their Social Insurance Law related obligations. The below formula is meant to clarify the annual increase in the monthly minimum subscription wage threshold:

• The Monthly Minimum Subscription Wage Threshold for the Years 2017 until 2022

=

The Minimum Subscription Threshold for Previous Year x 125%;

• The Monthly Minimum Subscription Wage Threshold for the Years 2022 onwards

=

The Minimum Subscription Threshold for Previous Year x 110%

Moreover, the Law has set the subscription for the Inclusive Social Insurance System regulated by the Law No. 112 of 1980[7] at 7 percent of the minimum social insurance threshold mentioned above. This subscription is payable by the insured. The Amendments introduced recently approved a 10 percent raise for all pensions arising from different social insurance laws. Furthermore, the Amendments set a general minimum pension of EGP 500, which will be fully funded from the State’s Treasury. Finally, the Law has determined some rules regarding the subscription in different social insurance systems. [1] Law No. 60/2016 on Raising Pensions and Amending Social Insurance Laws, Official Gazette, Issue 29 (bis), 24 July 2016. [2] Law No. 79/1975 issuing the Social Insurance Law, Official Gazette, Issue 35 (cont.), 28 August 1975. [3] Minister of Social Solidarity's Decision No. 126/2014 amending some provisions of the Minister of Finance's Decision No. 554/2007 regulating the execution of the Social Insurance Law No. 79/1975, Official Gazette, Issue 34 (cont.) (a), 11 February 2016. [4] Law No. 108/1976 issuing the Employers and Equivalents Social Insurance Law, Official Gazette, Issue 37 (cont.), 9 September 1976. [5] Law No. 50/1978 issuing the Egyptian Employees Abroad Social Insurance Law, Official Gazette, Issue 29 (cont.) (d), 20 July 1978. [6] Law No. 12/2003 issuing the Labor Law, Official Gazette, Issue 14 (bis), 7 April 2003. [7] Law No. 112/1980 issuing the Inclusive Social Insurance System Law, Official Gazette, Issue 23, 5 June 1980.