CAIRO: The government submitted a draft pensions law to parliament on Wednesday designed to boost savings and growth, but which some employers grumble carries tough penalties for errors in implementation that could harm businesses.
The bill raises the retirement age by five years to 65 for those entering the workforce from 2012, establishes a fund for each employee into which employers contribute and provides benefits for participants who lose their jobs.
It also outlines fines of up to LE 50,000 and prison terms for executives of firms found in violation, measures that prompted heated exchanges at a conference of finance ministry officials and executives on Tuesday.
The bill is expected to be approved by parliament, where pro-government lawmakers dominate.
Analysts have said pension reforms are needed to ease pressure on a budget that has to make up for a shortfall in contributions under the existing system. They also say a new system is needed to ensure Egyptians are better provided for in retirement.
"Our goal is not to hurt the businessmen, it is to encourage savings and find an equitable system that benefits all members of society," Assistant Finance Minister Mohamed Maait told a conference.
"We have an egregious problem on our hands. Egyptian citizens effectively witness a marked drop in their living standards once they are retired. That simply needs to change," Maait said.
Frustrations expressed by executives indicate challenges facing the government as it moves beyond what analysts say are the easier liberalization measures introduced since 2004 like tax cuts to addressing structural issues.
"We are all for change, but these penalties are teetering on the dangerous," Mohamed El Masry, chairman of the Federation of Egyptian Chambers of Commerce ,told participants, saying he and others were lobbying for the provision on prison terms to be scrapped.
Executives fear they could face harsh penalties if their employees, grappling with a new system, make errors.
"Penalties need to be proportional to the crime or else the goal would be to shut down our businesses," Mohamed Ghatwary, chairman of the Alexandria Business Association, told Reuters.
The Finance Ministry has said the law would help raise Egypt’s savings rate from 14 to 18 percent of gross domestic product and push growth up by 9 percent. It backs the penalties.
Egypt’s growth hit more than 7 percent before the financial crisis, and hovered near 5 percent during it. Economists say the government needs to push ahead with pension, subsidy and other reforms to get growth back up again.
Under the current pension scheme, pensioners receive a maximum of LE 1,240 a month but most receive much less.
The new law links pensions with contributions, which can be much more than the existing system, with payouts based on the final fund built up over a career.
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.
Individuals now working under the old system could migrate to the new one, provided they pay both the personal and employer contributions, Maait said.
"This could be a major deterrent for people seeking to change from one system to another, because they would have to pay a hefty cost," Beltone analyst Reham ElDesoki said.
Maait said having two pension schemes running in parallel would present challenges but added: "Our goal to ensure the financial sustainability of the new system and we can do that."
