A paycheck for life? Lebanon’s new pension gamble

Source: Nida Al Watan

With the formation of a new board of directors for the National Social Security Fund (NSSF), attention is once again turning to the Pension and Social Protection System Law, which was published in the Official Gazette three years ago but has yet to enter into force.

The Minister of Labour had previously announced that implementing the law was awaiting the formation of a new NSSF board. However, putting the law into practice does not appear as simple as some may think, as it requires the issuance of 14 implementing decrees. When will the law come into effect? And who will benefit from it?

Law No. 319/2023, which amends certain provisions of the Social Security Law to establish a pension and social protection system, is considered one of the most important laws related to the National Social Security Fund. It is expected to introduce the pension system applied in countries around the world to Lebanon.

The law requires 14 implementing decrees, as explained by NSSF Chairman Beshara Al Asmar to Nidaa Al Watan, after he was elected head of the new board of directors several days ago.

In this context, Al Asmar says:

The establishment of the NSSF board of directors was completed through a decree. An investment committee for the National Social Security Fund will also be established through a decree with specific requirements, while its members will be subject to evaluation by the Civil Service Council.

He considered the decree establishing the Fund’s investment committee one of the most important steps following the creation of the NSSF board.

In this regard, the Minister of Labour has begun the necessary procedures to implement this decree, open applications for membership in the committee, and examine the funds and assets owned by the Social Security Fund to ensure the launch of the pension law and the transition of insured workers from the end-of-service indemnity system to the pension system.

There must also be an investment manager, while the law defines the cooperation between the investment committee, the board of directors and the secretariat represented by the general director.

Given the required decrees that still need to be approved, the pension law will not be implemented immediately. The process will take several months and extend into the beginning of next year.

In this regard, Al Asmar said: “We will work hard to be able to transition to this system at the beginning of 2027.”

This raises the question: Who will benefit from this system?

Conditions for receiving a pension

Eligibility under the pension system varies and is divided into categories according to the age of the insured person.

For insured individuals aged 49 or younger and registered with the Social Security Fund, joining the pension system will be mandatory, meaning they will automatically become subject to the law.

For insured individuals between 49 and 58 years old, who have completed 15 years of service, they will have two options: either join the pension system and benefit from its provisions, or receive an end-of-service indemnity.

For insured individuals aged 58 and above, they will have the choice between remaining under the end-of-service indemnity system or joining the pension system, a decision that cannot be reversed within one year from the date the system enters into force.

If an insured person has reached the age of 64, has not withdrawn their indemnity, and the law was issued before they left employment, they may benefit from a pension instead of receiving an end-of-service payment, provided they have completed at least 15 years of service.

It should be noted that the pension system provides beneficiaries with a retirement salary that continues to be paid until their death. This is what distinguishes it from the end-of-service indemnity, which is paid only once.

How is the pension calculated?

The question remains: how will the pension salary be calculated?

The Pension and Social Protection Law covers a wide range of insured individuals while setting conditions and criteria for eligibility. It also allows Lebanese workers abroad to join the system and benefit from its provisions, according to conditions and criteria that will be determined later.

The pension itself will undergo periodic actuarial reviews to ensure that it remains aligned with the minimum wage and prevailing economic conditions when the law is implemented.

Given this situation, retirees who retired before the law enters its implementation phase and who have not withdrawn their Social Security compensation wonder whether they will benefit from the pension system.

Al Asmar denied this possibility, stating that “the law does not apply retroactively. Anyone who retired today will not receive a pension under the new law, whether they withdrew their compensation or not, because their compensation became due immediately after the end of their employment.”

The new system provides three benefits:

- Retirement pension

- Disability pension

- Pension for the insured person’s beneficiaries

The elements used to calculate the monthly pension include:

- Individual account, age, years of contributions and conversion factor.

- Mandatory and optional sectors.

- Mandatory and optional participation in the system.

- Conditions for pension eligibility.

- Early retirement and pension reductions.

- Contribution rates between the employee, employer and state.

Two main guarantees

The pension enjoys two main guarantees:

The first is linked to a percentage of the minimum wage: 55% after 15 years of service, reaching up to 80%.

The second is linked to a percentage of the average declared wages: 1.33% for each year of service.

The higher the salary and the longer the years of service, the higher the pension.

Example calculation

A calculation shows that if the minimum wage is 28 million Lebanese pounds ($312) and the service period is 15 years:

First guarantee:
After 15 years = 55% of the minimum wage:

28,000,000 × 55% = 15,400,000 Lebanese pounds
(around $173)

This amount can increase to reach 80% depending on the number of years of service.

Second guarantee:
Assuming the average declared salary is 90 million Lebanese pounds (around $1,000):

90,000,000 × 1.33% × 35 years of service = approximately 41,850,000 Lebanese pounds
(around $465)

It should be noted that the higher guarantee is used when calculating the pension.

The law also requires annual reassessment of pensions based on the price index and wage levels. This means that if the calculation of the minimum wage changes due to an increase, pensions will be adjusted accordingly.

The system includes mandatory sectors, such as private-sector employees and those working for the state, in addition to optional sectors that can join through a decree.

As previously mentioned, the law defines the basic eligibility requirements: reaching the age of 64 and contributing for at least 15 years. Otherwise, the insured person receives a one-time payment.

Early retirement results in a pension reduction of 0.5% for each month before the legal retirement age.

Contributions will be distributed between employees, employers and the state, with details to be determined through a decree.

The formation of a new board of directors for the National Social Security Fund is only one step in a long process. The Pension and Social Protection System Law cannot enter into force without completing its regulatory structure and issuing the necessary implementing decrees.

The next phase will therefore not only depend on the importance of the law itself, but on the ability of the state, the Social Security Fund’s board and relevant authorities to complete more than 14 implementing decrees in a short period of time, transforming one of the most anticipated social reforms in years from a promise on paper into an actual pension system that provides sustainable protection for workers after their years of employment.