CAIRO (Reuters) - Egypt’s parliament has approved a pension and social insurance law that raises the retirement age, forces employers to contribute to pension payments and introduces unemployment cover for the first time.
However, a clause threatening jail for violations was dropped after complaints from company executives.
The law, designed to cut public spending and boost growth, will raise the retirement age to 65 from 60 for workers entering the workforce from 2012. It also stipulates the establishment of a pension and unemployment fund for each employee, in the public and private sectors, into which employers and employees will contribute, a parliament official said.
The Finance Ministry forecasts the bill will save the government money and increase GDP growth to 9 percent in 2012 after it comes into effect, from 5 percent GDP growth last year.
It should also help Egypt in its aim to cut its budget deficit from 7.9 percent of GDP in 2010/11 to 3.5 percent in the following five years.
“We have approved the final draft of the bill,” Abdel Aziz Mostafa, vice speaker of the People’s Assembly, told Reuters. “The law will now be raised to the President for enactment.”
The law does not include prison terms for executives of firms that violate the law, after heated complaints from many who said tough penalties in the draft could harm businesses.
Employers who violate the law, by not contributing to employee funds, for example, face fines of up to 50,000 Egyptian pounds.
Participants in the pension plan who lose their job can apply for unemployment benefits for up to one year, extended from six months in the draft. Egypt does not currently have a mechanism to pay unemployment benefit.
Analysts also say a new pension system is needed to ensure Egyptians are better provided for in retirement. However, the law does not cover the country’s large numbers of street vendors, cleaners and other workers not employed by either the state or companies.
Opposition parliamentarians objected to the speed at which the legislation passed. The government says it has been working on the reform for three years.
The draft was proposed earlier this year and the final draft submitted last Wednesday. It was passed late on Sunday evening.
Under the new system, the government has said it hopes that two-thirds of each individual’s pension fund would be invested in government bonds and the rest in other investment funds.