By Ebrahim K Ebrahim

All Arab countries, except for three, have deficits in their pension funds exceeding 50%. As for the three countries, two of them started their social insurance relatively late and the third one had to significantly recapitalize its fund early last decade. Likewise, these three countries are not immune from deficits of similar proportions during the next two decades if they end up doing the same thing.
Up until now, there is one thing all Arab countries have in common in addition to the Arabic language, which is their sole dependence in their pension arrangements on public pension funds that are run by governments on a pay-as-you-go (PAYG) basis. There is no institutional framework, infrastructure, or regulatory regime for retirement income beyond these funds. These pension funds tend to be quite generous, but are facing increasingly huge funding deficits, making their long-term feasibility a mounting concern. For several years, if
not decades, there has been a growing imbalance between the amount of money going into the system, and that coming out of it, leading economists to describe such funds as something of a time-bomb.
Defined benefit pensions — a guaranteed, “gold-plated” inflation-linked pension for life, based on salary and years worked — are all but dead globally in the private sector, or reformed in the public sector in many countries around the world. This trend was accelerated in the last 20 years as the cost of new pension promises has spiraled due to declining investment returns.

Damage Already Done

In most cases, fixing these funds is a difficult, if not impossible, mission, for the deficit in some countries is almost equal to their national GDP, at a time when oil revenues lost their aura to underwrite government liabilities as in the past. For some countries, we can nearly say that the damage has already been done and cannot be changed.
In some of our countries, women can retire after 15 years and men after 20 years of service till today, allowing them to live 40 years or more in their retirement life financed by these pension funds. Therefore, half of the current retirees in such countries are in their mid-40s and early fifties; contrary to even Bismarck, who invented pension funds 150 years ago, who had prescribed from that time that people should work full service until the age of 65 and then retire.

Source: Fintech Robos