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Sunday, 29 December 2019

Breaking down how Egypt’s newly-established pension fund will work

LEGISLATION WATCH- Breaking down how the newly-established pension fund will work: The body that administers the state pension fund issued a circular on Thursday detailing how the pension fund established under the Social Security and Pensions Act will operate, Masrawy reports. The circular outlines the criteria for employees covered by the act, which as far as we can tell, is everyone in the public and private sectors, including temporary and seasonal workers.

How much is everyone paying? The act, which was ratified by President Abdel Fattah El Sisi in August, will see a share of public and private sector workers’ salaries going towards the fund. This includes 21% of employee salaries (with employers required to contribute 12% and employees the remaining 9%), which will cover the pension pay-out for old age, disability, and death. This percentage will increase 1% once every seven years system-wide until it hits 26%. Additional items covered by the pension fund (including health and unemployment benefits) will also be added to bring the total amount deducted from employees’ monthly salaries to 28.25% for government workers and 29.75% for private sector workers. Salaries will be calculated as the total of employees’ base salaries and all other forms of compensation, including bonus comp. Public sector workers often have a low base salary that is then complemented by a laundry list of perks, allowances, and special payouts.

Minimum and maximum pay-ins: According to the circular, the minimum pay-in as of January 2020 has been set at EGP 12k per annum (at a rate of EGP 1,000 per month), with a ceiling set at EGP 84k per year (i.e. EGP 7,000 per month). The minimum and maximum rates will be hiked 15% at the beginning of each year for seven years, after which they will be adjusted according to inflation rates.

The law will also set up a bonus system that will take 2% of the monthly pay-ins (with employers and employees each contributing 1% of the monthly payment) and invest the sum on behalf of workers. It remains unclear whether the bonus system is mandatory, and whether the amount is automatically deducted from the base pay-in or if those who elect to subscribe to the bonus system will be required to contribute a higher percentage of their salaries.

When does it go into effect? This latest amendment to the SI scheme goes into effect on 1 January 2020.

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