International report: Iraq’s pension system is unfair, ineffective and requires comprehensive reform

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[size=52]International report: Iraq’s pension system is unfair, ineffective and requires comprehensive reform[/size]

[size=45]A report issued by the International Labor Organization revealed that the retirement system in Iraq suffers from severe fragmentation, and is considered unfair and ineffective.[/size]
[size=45]“Despite important legal reforms undertaken by Iraq, weak implementation and lack of coordination between the public and private sectors make Iraq’s current pension system highly fragmented, inequitable and largely ineffective,” the report said.[/size]
[size=45]“The pension coverage gap among the elderly is expected to widen rapidly, especially among women outside the labour market and informal workers,” he said, adding that, under current policies, the total financial cost of public, private and budget-financed pension benefits is expected to remain close to 4 percent of annual GDP over the next eight decades.[/size]
[size=45]“Financial expenditures on retirement benefits will continue to disproportionately benefit the relatively well-off organized workforce, who participate in public and private contributory programs. The current system thus creates an uneven playing field between the public and private sectors, contributing to the expansion of an already bloated civil service and hampering much-needed economic diversification and private sector growth,” he added.[/size]
[size=45]The report indicated that “the policy note Towards a comprehensive, equitable and sustainable pension system in Iraq, published by the International Monetary Fund, the International Labor Organization and the World Bank, emphasizes the need for comprehensive reforms to the pension system in Iraq that enhance the equity, adequacy and sustainability of contributory programs, while expanding the scope of protection to include excluded groups, especially women.”[/size]
[size=45]This note was prepared based on the global partnership between the International Labour Organization and the International Monetary Fund in the field of social protection to achieve the Sustainable Development Goals and targets, especially targets 1-3 and 3-8, by ensuring adequate and sustainable financing for social protection systems, including social spending floors, and expanding the scope of social protection to include all, as Iraq was considered one of the leading countries in this regard.[/size]
[size=45]To address the shortcomings of the current pension system and pave the way for a more sustainable and equitable solution to income protection in old age, this note recommends some parametric reforms based on several considerations. These reforms aim to enhance intergenerational and intragenerational equity, reduce labor market distortions, enhance the sustainability of the national pension system, and curb the deficit of the State Employees’ Pension Fund before it becomes unfunded, in order to significantly ease the financial burden.[/size]
[size=45]The proposed reforms aim to achieve several interrelated objectives:
First, they aim to expand the coverage of private sector workers, ensure incentives to participate in pension schemes during working hours, and enhance economic participation and the transition to a formal economy. At the same time, the reforms aim to ensure that income replacement rates are more aligned between the public and private sectors and among future retirees. This is particularly important for Iraq, as large disparities in benefits between the two sectors negatively impact labor mobility and private sector growth. The proposed reforms will also significantly reduce the overall financial costs of the pension system, while reallocating public funds to expand pension protection to include the most vulnerable segments of the population.[/size]
[size=45]Implementing the proposed parametric reforms is expected to reduce fiscal costs to about 0.7 percent of GDP by 2075, and then to 0.1-1 percent of GDP by 2100.[/size]
[size=45]The reforms also allow for regular benchmarking of pensions to ensure that benefits are adequate over time. Adopting parametric reforms alone for both programmes may not be entirely sufficient to ensure equality in the pension system in the long run. Over time, different political pressures may lead to divergence in the parameters, which could lead to a resurgence of the shortcomings of the current system.[/size]
[size=45]This risk can be addressed by combining parametric reforms with measures to reduce institutional fragmentation either through partial integration or harmonization. To close the coverage gap in old-age income protection, we propose in this note some options for designing a non-contributory pension under pillar zero.[/size]
[size=45]The first option is a non-contributory universal pension, under which all individuals over a certain age are entitled to a pension, regardless of their income level, whether they receive any other form of income support, or any other criteria.[/size]
[size=45]The second option is a non-contributory pension based on a means test, which is granted to all persons in old age, except those receiving a contributory pension for workers in the public and private sectors.[/size]
[size=45]The third option is a non-contributory pension based on a means-test and wealth test, which aims to cover the “missing middle”. A broader range of income or assets would be used to determine which high-income or wealthy people would be excluded from the non-contributory scheme, alongside those excluded under the means-test.[/size]
[size=45]To ensure the effectiveness of a non-contributory pension scheme, it must take into account the basic principles set out in international social security standards, including ILO Convention No. 102. First, the value of the non-contributory pension must ensure a “dignified life” for the beneficiary’s family.[/size]
[size=45]“In all the options described, it is suggested that the transfer amount should be set on a fixed percentage basis. Regular adjustments to the level of pensions are also necessary to ensure that they keep pace with rising living costs. Secondly, it is crucial to ensure predictability of payments, which means that payments should be made regularly to enable beneficiary households to budget and plan effectively.”[/size]
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