Khaberni - The problem of the actuarial deficit in the social security institution is a result of multiple structural and technical build-ups. To ensure the fund's sustainability, these causes should be addressed as an integrated package rather than piecemeal solutions.
First: Causes of the worsening actuarial deficit
1. Expansion of early retirement: Early retirement has shifted from an "exception" for necessary cases to a "rule" generally, especially in governmental institutions, which has put tremendous pressure on cash flows.
2. Imbalance of contributions and compensations: The retirement calculation suffers from a gap between what is paid by the contributor and what is received; where salaries are calculated based on an average of the last two or five years (at their peak), while contributions at the beginning of the career were paid on very low salaries, making the real value of contributions much less than the financial burden of the granted retirement salary.
3. Modest investment returns: The management of investment portfolios has not achieved returns in line with the discount rates adopted in actuarial studies, as the returns remained below the expected levels to cover future obligations.
4. Burdens of the pandemic period (Corona): Dispensing insurance benefits during the pandemic without corresponding investments led to the depletion of the fund's liquidity.
5. Operational costs: There is a need to review expenditure items and other expenses to control the financial management's efficiency.
6. Administrative laxity in implementing recommendations
The reform path in the institution suffers from an "implementation gap"; where periodic actuarial studies diagnose the problem accurately, yet there is laxity or delay in translating these recommendations into legislative or procedural decisions. This continued postponement of confrontation has led to an exacerbation of the crisis and a doubling of the cost of reform over time.
7. Absence of effective early liquidity management
In the early stages of the fund's life, cash flows (revenues) were at their peak due to a small number of retirees compared to contributors. However, this "financial surplus" was not optimally utilized through strategic investments with high cumulative returns, nor was there long-term planning to seize investment opportunities that could have formed "solid financial buffers" to face current obligations.
Second: Proposed Reformative Measures for Implementation
Based on the above diagnosis, it is proposed to adopt the following policies concurrently:
1. Control early retirement: Reconsider early retirement as an exceptional case and increase the number of required contributions to reach 360, with strict conditions for eligibility.
2. Structuring progressive contributions: Conduct an actuarial study to adopt a "graduation" in contribution rates based on salary categories; ensuring that higher salary employees contribute more to enhance insurance revenues.
3. Adjustment of high salary calculation mechanism: Restructure the current retirement salaries, adopting an average of the last 10 years for the new retirement calculation, with a maximum retirement salary cap not exceeding 3000 dinars.
4. Amendment of legal age: Raise the retirement age for males to 62 or 63 years, and for females to 58 years, in line with increased life expectancy and international standards.
5. Developing the investment strategy: Redefine the investment policy of the guarantee to focus on safe instruments with returns clearly surpassing the interest rates on bank deposits.
6. Governance of actuarial recommendations: Establish a legal framework that obligates the board of directors and the government to adopt the results of actuarial studies within specified timelines, preventing the deferral of crises to future generations.
Note These proposals represent a theoretical framework that requires an actuarial study using actual data from the subscribers in the Jordanian Social Security Fund, to determine the precise ratios and ensure the desired financial balance before officially adopting them.
Dr. Jameel Jabr
Assistant Professor
Ph.D. in Actuarial Statistics and Financial Risks
