Saudis may work longer, pay more to fill pension fund gap

The government – faced with an estimated actuarial gap of SR800 billion ($213bn) at the state-controlled pension fund – is weighing proposals to increase the retirement age, according to three people familiar with the matter, who asked not to be identified to discuss confidential deliberations. It could also require workers to contribute more of their salaries to the General Organisation for Social Insurance, or GOSI, which manages both public and private sector pensions, the people said.

A final decision on the details of the changes and whether to implement them has not yet been made, the people said.

Saudi officials have warned the current system is unsustainable – a quandary pension programmes the world over have faced as people have lived longer, but this one has a decidedly Saudi twist.

The average Saudi life expectancy is 75 years, and although the official retirement age is about 60 for men and women, about a third retire early after working 25 years in the private sector or 20 in the civil service. That compares to an average retirement age of 64.3 years for men and 63.5 years for women in member countries of the Organisation for Economic Cooperation and Development.

Any changes to the rules, however, could be controversial domestically. Crown Prince Mohammed bin Salman has already upended decades of expectation that the state would use its oil wealth to provide citizens with benefits like cheap gasoline and power, plentiful government jobs and university scholarships.

As part of his plan to end the economy’s reliance on oil and fill a budget gap left by lower crude prices, he’s remodelled the social contract in the world’s largest crude exporter by cutting subsidies, introducing taxes and criticising a bloated public sector.

Many low- and middle-income Saudis are struggling to adjust, and the coronavirus pandemic has only accelerated the pace of change by straining government finances and highlighting the urgency of economic diversification.

Prince Mohammed has already upended decades of expectation that the state would use its oil wealth to provide citizens with benefits like cheap gasoline and power, plentiful government jobs and university scholarships.

When asked about the proposed changes to the pension system, GOSI said the merger of the public and private sector pension and insurance funds last month “will not affect the insurance entitlements of the insurance clients, the pensions for the retirement clients, or the percentages or supply of subscriptions for each fund, nor its operations or transactions”.

But Nader Al Wahibi, the assistant governor at GOSI, recently argued on state television that early retirement and longer life spans were endangering the fund’s future. The practice of retiring workers after 20 years of service was temporarily frozen after the fund merged with the Public Pension Agency last month.

“The people that are retiring early now are going to drain all of the money in the fund,” Al Wahibi said. “They’re living longer, and the money isn’t enough, even if we achieved astronomical investment returns.” Workers now pay nine percent of their salaries into the fund for retirement.

The Ministry of Finance and the government’s Centre for International Communication didn’t immediately respond to requests for comment.