(SBU) BANKRUPT BY 2026: KUWAIT'S LOOMING SOCIAL

UNCLAS KUWAIT 005179

SIPDIS

SENSITIVE
TREASURY FOR OASIA

E.O. 12958: DECL: N/A
TAGS: PGOV EFIN ECON KU
SUBJECT: (SBU) BANKRUPT BY 2026: KUWAIT'S LOOMING SOCIAL
SECURITY CRISIS


(U) SENSITIVE BUT UNCLASSIFIED; PROTECT ACCORDINGLY. NOT FOR
INTERNET DISTRIBUTION


1. (SBU) SUMMARY: Important enough to disrupt the opening of the
National Assembly, a draft amendment to the Social Securities
law is the subject of hot debate between Government ministers
and MPs. Kuwait's liberal retirement policies have created a
sense of entitlement which may soon be betrayed; without changes
to the law, the Social Securities fund will be bankrupt by 2026.
Even Government proposals which are unpopular with the National
Assembly will only delay rather than avert the crisis. END
SUMMARY


2. (U) In the last session of the National Assembly, MPs voted
to amend the current Social Securities act (Law 25),but their
draft amendment, which would have put additional strain on the
budget, was returned to the National Assembly by the Amir. The
vote to override his veto failed to gather the necessary two-
thirds majority and so the draft law was held over to the
current session. Arguments over voting again on the draft
amendment marred the opening day of the National Assembly, and a
special session to discuss the issue is set for December 30th.
The Public Institution for Social Security will meet with
parliamentary committees November 25th to plead the Government's
case. If the National Assembly passes the amendment by a simple
majority, it will become law automatically; the Amir cannot veto
it again.


3. (U) Under Law 25, all Kuwaiti males who have worked for 15
years are eligible to collect their retirement starting at age
50, while those who have 20 years of service can collect
starting at age 45. The age of eligibility is subject to a
sliding scale-- it will increase every three years until it hits
age 55 in 2017. Women with 15 years of service can collect their
pension at age 45. The pension consists of 65 percent of the
last month's salary, plus 2 percent for each year of service
beyond 15 years. The maximum benefit is 95 percent of the last
month's salary.


4. (U) The draft amendment as passed last session would make
four changes to Law 25. It would (a) remove the minimum age
requirement for men engaged in hazardous work, (b) slow the rate
at which the age of eligibility advances to make it 55 by 2020,
(c) increase the pension by 50 dinars per month for anyone
receiving less than 700 dinars per month, and (d) remove the
minimum age requirement for women.


5. (SBU) The Government has a counterproposal which it hopes
will pass in the National Assembly: (a) and (b) as paragraph 4
above, (c) increase the pension by 50 to 200 dinars for families
with five children or more who receive less than 650 dinars per
month, and (d) set the minimum age for women to retire at 40,
sliding to 50 by 2017. More and more women enter the workforce
every year, and the Government is especially interested in
regulating their retirement age and benefits because women tend
to work fewer years at lower salaries, therefore contributing
less to the fund.


5. (U) The Social Securities fund currently has three sources of
income: employee contributions (5 percent of salary),investment
income, and government transfers. In 2002, the fund will take
in about 640 million dinars and needs to pay out about 510
million dinars in benefits. If the draft amendment proposed by
MPs in the National Assembly is voted into law, the Government
predicts that the money taken into the fund will equal the money
that must be paid out in 2011. After that, the Public
Institution for Social Security will have to pull capital out of
the investment fund in order to pay pensions, and by 2026, the
social securities fund will be bankrupt.


6. (SBU) COMMENT: Officials at the Public Institution for Social
Security acknowledge that the Government's counter-proposal will
postpone rather than solve the looming crisis. The Deputy
Director is worried not about the younger generation who can
perhaps still be taught not to rely on the government, but about
the middle-aged generation who will have nothing to fall back on
if the government safety net is reduced or withdrawn. The
Government faces an uphill battle to convince the National
Assembly to vote to limit benefits during an election year, but
is pushing hard to show MPs that under the proposed amendment,
the Social Security fund will start to lose money in only nine
years. Even if the Government succeeds, it must still seek a
solution to the ever-growing Social Security problem, and may
have to choose between the unpopular alternatives of increasing
employee contributions or cutting benefits in order to make the
money last longer. Kuwaitis may have to face the hard reality
that even oil money has its limits. END COMMENT

JONES