Abstract
This chapter assesses Iraq’s national pension system by examining the fiscal burden of budget-financed pensions and providing a sustainability analysis of the contributory pension scheme for public sector workers. It also outlines reform options that can assist the authorities in containing the fiscal burden of the pension system, improving its adequacy, and reducing labor market distortions to remove barriers to private sector growth.
Strengthening Sustainability of the Public Pension System in Iraq1
This chapter assesses Iraq’s national pension system by examining the fiscal burden of budget-financed pensions and providing a sustainability analysis of the contributory pension scheme for public sector workers. It also outlines reform options that can assist the authorities in containing the fiscal burden of the pension system, improving its adequacy, and reducing labor market distortions to remove barriers to private sector growth.
A. Background
1. Iraq’s pension system comprises a fragmented mosaic of pension schemes owing to the country’s difficult political history. In the wake of the 2003 war, the pension system was virtually dismantled, and regular pension payouts were replaced with emergency flat payments financed by the government budget. In subsequent years, the pension system was gradually restored and fine-tuned with key changes taking place in 2006, 2009, 2014, and 2019-20:
The first post-2003 pension law was adopted in January 2006 and amended in December 2007, becoming known as the Unified Pension Law of 2007. The law split the pension system for public sector workers into two parts:
The so-called “legacy pensions", which represented payments to public sector employees who retired before January 17, 2006.2 These payments were paid out of the government budget and managed by the National Board of Pensions (NBP) that was formed under the Ministry of Finance (MoF); and
A new contributory, pay-as-you-go (PAYG) defined benefit pension scheme for civil servants, military and security personnel, and employees of state-owned enterprises (SOEs) retiring after January 17, 2006. Administration of the new contributory system was entrusted to the newly created State Pension Fund (SPF), an administrative unit under the NBP.3
Three additional budget-financed schemes were created in October 2009 through Law No. 20 titled “Compensating the Victims of Military Operations, Military Accidents and Terrorist Actions”, which made victims of war, terrorist acts, and political persecution by the former regime eligible for various forms of compensation. Eligibility was made retroactive to March 2003 and included the victims’ families, notably parents, children, spouses, and siblings.
The Unified Pension Law (Law 9/2014) that was adopted in February 2014 largely governs the current contributory pension scheme for public sector workers. The law left the institutional and financing arrangements of the pension system for public sector workers unchanged but updated pension parameters (rules and benefits), including an almost doubling of the minimum pension to ID 400,000 and introduction of pensions for retirees’ survivors without a private source of income, profession, or position in the private sector.4 Pension contributions were increased to 10 percent for employees and 15 percent for the state.
An additional set of amendments to the pension law were introduced in January 2020 following widespread social unrest during the preceding months. They expanded eligibility and increased pension benefits while leaving the contribution rates unchanged. The mandatory retirement age was lowered from 63 to 60 and eligibility for early retirement was relaxed from 20 years of service and a minimum age of 50 to 15 years of service and a minimum age of 45. The minimum pension benefit was raised from ID 400,000 to ID 500,000.5
A contributory private sector pension scheme completes Iraq’s national pension system. It is regulated by the Law of Pensions and Social Security No. 39 of 1971, amended by Law No. 89 of 1979. Benefits and contributions are both lower than in the public sector, and currently the scheme effectively covers only 6 percent of all workers in the private sector. The forthcoming IMF-ILO-World Bank policy paper will take a deeper dive into issues related to the national pension system as a whole, interlinkages across the public, private, and budget-financed pension schemes, and instruments to fill the large coverage gap in the pension system.
Structure of Iraq’s National Pension System
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Structure of Iraq’s National Pension System
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Structure of Iraq’s National Pension System
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
2. The pension system for public sector workers and budget-financed pension schemes (legacy pensions and others) cover almost 3.1 million beneficiaries, of which 0.6 million are beneficiaries of the contributory SPF (405 thousand primary beneficiaries, 199 thousand dependents). Of the more than 2.5 million beneficiaries of the budget-financed pension system, 1.96 million are recipients of legacy pensions, that is, those who retired prior to the reform of 2006. Victims of terrorism, martyrs and their families, and the politically persecuted form the remaining component of the budget-financed pension system which amounted to over 13 trillion ID (4.4 percent of GDP) in 2021.
Pension System’s Contributory (Public Sector) and Budget-financed Schemes
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Pension System’s Contributory (Public Sector) and Budget-financed Schemes
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Pension System’s Contributory (Public Sector) and Budget-financed Schemes
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
B. Fiscal Implications of Budget-Financed Pension Schemes
3. Budget-financed pension spending has increased in recent years:
Legacy pension payments rose due to generous survivor benefits and continued enrollment. New primary beneficiaries, who were not originally identified as pre-2006 retirees due to weaknesses of the eligibility verification process, have been recognized in subsequent years and added to the system. In addition, benefits have been transferred to a wide range of dependents and survivors after the passing of the primary beneficiary. As a result, between 2010 and 2021, the number of legacy pension recipients increased by 17.5 percent, from 1.7 million to almost 2 million, while the overall legacy pension spending exceeded 10 trillion ID (3 percent of GDP). Legacy pensions are expected to stay elevated in the medium term, but gradually decline in the long term as the closed scheme winds down.
Total Number of Beneficiaries (pre-2006 Retirees) and Pension Spending
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Source: IMF staff calculations using data from authorities.Total Number of Beneficiaries (pre-2006 Retirees) and Pension Spending
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Source: IMF staff calculations using data from authorities.Total Number of Beneficiaries (pre-2006 Retirees) and Pension Spending
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Source: IMF staff calculations using data from authorities.The number of beneficiaries of other budget-financed pensions has also increased over the years. The martyr’s fund expanded in size in the wake of the war with ISIS, with the number of primary beneficiaries rising from 139,469 in 2013 to 176,884 in 2021. Alongside, the number of beneficiaries categorized as victims of terrorism has more than doubled since 2016, reaching an estimated 298,460 in 2021. Similarly, the number of beneficiaries deemed as victims of political persecution has increased ninefold to 100,000 between 2011 to 2021. Liabilities under these three budget-financed schemes amounted to more than 3 trillion ID in 2021 (1 percent of GDP). While actual payment amounts varied over time reflecting periods when budgetary financing was insufficient to meet claims – leading to a buildup of arrears – total pension claims from the budget-financed schemes have continued to trend upward.
Total Number of Non-Contributory Beneficiaries
(In thousands)
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Source: IMF staff calculations using data from authorities.Total Number of Non-Contributory Beneficiaries
(In thousands)
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Source: IMF staff calculations using data from authorities.Total Number of Non-Contributory Beneficiaries
(In thousands)
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Source: IMF staff calculations using data from authorities.4. The fiscal costs of budget-financed pension schemes are expected to remain elevated. Legacy and other budget-financed pension schemes show significant persistence due to extensive survivor benefits, which appear generous in international comparison,6 leading to a slow decay of the stock of pension liabilities. Further, while legacy pensions and pensions for political prisoners are expected to eventually unwind in the long term, potential worsening of the security situation could lead to a surge in the number of claimants under the schemes for martyrs and victims of terrorism.
Budget-financed Pension Spending
(In percent of GDP)
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Sources: Iraqi authorities and IMF staff.Budget-financed Pension Spending
(In percent of GDP)
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Sources: Iraqi authorities and IMF staff.Budget-financed Pension Spending
(In percent of GDP)
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Sources: Iraqi authorities and IMF staff.C. Financial Sustainability of the Contributory Pension System for Public Sector Workers
5. Helped by the rising government payroll, the SPF has been able to mobilize sufficient revenues to cover its expenditures and build up a reserve fund, which exceeded ID 12 trillion at end-2018 (4.5 percent of GDP). Past surpluses of the SPF were partly due to the rapid and sustained growth of the government payroll with the attendant growth of contributions. Since 2006, owing to a variety of political economy factors and a social compact based on job creation by the government, the public sector payroll grew rapidly to reach 19.8 percent of GDP in 2020 (almost half of all current spending),7 covering over 35 percent of the labor force.
Government Revenue and Wage Bill
(In trillions of Iraqi dinar)
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Sources: Iraqi authorities and IMF staff calculationsGovernment Revenue and Wage Bill
(In trillions of Iraqi dinar)
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Sources: Iraqi authorities and IMF staff calculationsGovernment Revenue and Wage Bill
(In trillions of Iraqi dinar)
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Sources: Iraqi authorities and IMF staff calculations6. However, recent developments have begun to reverse this trend. First, the financial sustainability of the SPF has been eroded by the 2020 amendments to the public sector pension law that included expansion of eligibility, lowering of the retirement age – thus also reducing aggregate contributions – and increase in pension benefits. As a result, the SPF has begun to incur a widening deficit which reached ID 1.6 trillion (0.5 percent of GDP) in 2021. Baseline projections indicate that, under current trends, the SPF’s expenditures will continue to outweigh its revenues and SPF reserves could be depleted by end-2024, requiring significant and increasing budgetary financing in the following years.8
Projected Number of Contributors and Beneficiaries, 2021-2080, Under Baseline Scenario
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Projected Number of Contributors and Beneficiaries, 2021-2080, Under Baseline Scenario
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Projected Number of Contributors and Beneficiaries, 2021-2080, Under Baseline Scenario
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
7. Financial sustainability of the SPF is also linked to the future path of government payroll, which should inform the calibration of future changes to the pension system:9
In the baseline projection, which assumes that the percentage of the working age population entering the civil service each year decreases from 12 percent to 8 percent in the long term, but the overall payroll continues to grow due to robust overall population growth, the SPF deficit is expected to widen to about 4 percent of GDP over the next two decades and more than 6 percent of GDP by 2080.
In a scenario of an accelerated wage bill reform and potential transition of public sector workers into the private sector – modeled as an attrition of the government workforce to almost half its current size by 2080 – the SPF deficit is projected to widen and peak at around 4 percent in the 2050s and then gradually decline. Accelerated civil service reforms would result in fewer employees (contributors) early in the time horizon, leading to larger SPF deficits relative to the baseline. However, with fewer public employees in the system now, the stock of pension liabilities will be lower in the future, since there will be fewer retirees, reducing the burden on the SPF and resulting in lower deficits after 2050 relative to baseline.
D. Contours of a Possible Pension Reform
8. Reform of the pension system will need to balance principles of equity, efficiency, and financial sustainability, while ensuring adequacy and broad-based coverage of persons of old age.10 Sustainability is key for intergenerational equity and ensuring that the burden on public finances remains manageable. An equitable pension system aims to ensure, for instance, that employees with the same age profile and career trajectory receive similar pensions in real terms during retirement. It also means that contributors in one generation are not overburdened in support of other generations, the uncovered are not forced to support the covered, and the more generously covered are not supported by those with less adequate protection.
Balancing Multiple Objectives of the Pension System
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Source: IMF-ILO-World Bank presentation to the authorities (May 2022 IMF Staff Visit).Balancing Multiple Objectives of the Pension System
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Source: IMF-ILO-World Bank presentation to the authorities (May 2022 IMF Staff Visit).Balancing Multiple Objectives of the Pension System
Citation: IMF Staff Country Reports 2023, 076; 10.5089/9798400231759.002.A001
Source: IMF-ILO-World Bank presentation to the authorities (May 2022 IMF Staff Visit).9. Consistent with these principles, over time, Iraq would benefit from bringing all pension schemes under an equitable, sustainable, and adequate system, with similar rules and benefits across beneficiaries. Such a system should minimize distortions to people’s incentives to work, contribute, and save while encouraging labor mobility across sectors and private sector growth.11 The forthcoming joint policy paper by the IMF, World Bank, and the ILO will expand on this discussion, including outlining a possible roadmap toward a unified pension system in consultation with the authorities and social partners in Iraq.12
10. Such an ambitious and comprehensive reform is generally difficult to implement in one step owing to various political economy, capacity, and other constraints. Therefore, a gradual phase-in of pension reforms can be considered. In this context, the authorities should consider prioritizing the rationalization of the parameters of the pension scheme for public sector workers and equalizing pension system parameters across public and private sectors. This will improve the financial sustainability of the pension system for public sector employees in the early stages of the reform, strengthening public finances, and facilitate progressive integration of the two schemes across the public and private sectors.
11. The fiscal burden of budget-financed pension schemes can be contained by strengthening eligibility verification and bringing survivor benefits in line with international best practice. Budget-financed pension schemes in Iraq can be expected to persist, reflecting the unique political history of the country. A key challenge for the authorities is how to fit such a system within existing overall fiscal constraints. In this context, it would be important to continue strengthening the verification process based on clear and transparent criteria to ensure that benefits are paid only to individuals who are truly eligible. In parallel, survivor entitlements could be limited to immediate family members, and made time-bound instead of being lifelong in nature, as is the case in most other countries.
12. The contributory pension system for public sector workers features larger payouts and shorter service duration requirements relative to international comparators. The average benefit ratio – average pension as a percentage of the average wage of contributors – is already among the highest in the region and has increased from 196 percent in 2013 to 253 percent in 2019, while the retirement age of 60 years is one of the lowest. That pension payments have been considerably increased in an ad-hoc manner has contributed to a further increase of this benefit ratio in recent years. In addition to the high benefit ratio, individual replacement rates are also high due to the use of only the last three-year average of an employee’s salary for pension calculations, a high accrual rate, and the existence of numerous allowances that boost the overall payout.13 These pension rules can lead to pension income oftentimes being higher than public sector workers’ pre-retirement income (Box 1).
Pension vs. Wage Income – Illustrative Example
(IMF-ILO-World Bank joint policy paper, forthcoming)
Simple calculation for pension benefits:
Suppose the average of a newly retired individual’s basic salary for the last 3 years was ID 1,200,000, with a career average salary of ID 900,000.
Years of services = 30
Educational attainment = Master’s degree
First, calculate the basic pension (without allowances) using the pension formula:
Basic Pension = (3-year salary average x accrual rate x (# of service months/12))/100
Basic Pension = (1,200,000 x 2.5 x 30) / 100= ID 900,000
Second, add the livelihood and education-related pension allowances:
In the above case, the pensioner has two allowances:
1. Livelihood allowance = 30% (1% for each year of service)
2. Education-related allowance = 15% (Master’s degree, Article 35 in law 9)
Total Allowances Factor = 30% + 15% = 45%
Third, calculate the final pension:
Final Pension = Basic Pension x (1+Allowance Factor) = 900,000 x 1.45 = ID 1,305,000
13. The long-term sustainability and intergenerational equity of the SPF could be strengthened by parametric reforms based on international best practices and standards. Reform options toward this end can include eliminating regressive livelihood and education allowances, reducing the accrual rate from 2.5 to 2 percent, gradually extending the base used for pension calculations to include the entire career, increasing the retirement age to 65 for new entrants to the public sector (with subsequent increases linked to life expectancy), and applying actuarially fair factors for pension reductions in case of early retirement (Table 1). Widening deficits necessitate urgent action since a delay will increase fiscal costs of the SPF and require greater tightening in the future.
14. At the same time, adequacy and predictability of social protection provided by the pension system for public sector workers can be improved. Automatic cost-of-living adjustments based on CPI, linking minimum pensions to the minimum wage, and establishing a mechanism to maintain such a ratio as a floor—for example, set at 60 percent of the minimum wage—would provide better protection to the most vulnerable than the current practice of setting the minimum pension in nominal terms and providing ad-hoc periodic cost-of-living adjustments. The reforms can also rationalize the high average replacement rates and be framed within a multi-pillared system that integrates contributory and non-contributory schemes to address adequacy and coverage gaps, especially for the most vulnerable.
Iraq: Proposed Reform of Key Parameters of the Contributory Public Pension System
Iraq: Proposed Reform of Key Parameters of the Contributory Public Pension System
| Public pension parameters | Current Law | Reforms |
|---|---|---|
| Retirement Age | 50 (mandatory age 60) | Increase to 65 – for new entrants - and eventually link to life expectancy |
| Rules for Early Retirement | Disabled and women taking care of children can retire early without penalty | Apply actuarially fair factors for pension reductions for early retirement |
| Rules for Delayed Retirement | Mandatory retirement at 60 (with some exceptions) | Mandatory retirement at age 65 |
| Post-retirement Indexation | Not specified in law (ad hoc) | Automatic indexation to inflation |
| Incremental Replacement Rate (Accrual Rate) | 2.5% | 2% |
| Number of Last Years for Wage Base Calculation | Last three years | Entire career average wage (gradual transition) |
| Minimum pension | 500,000 ID (Note: Min wage as of 04/20/2022 is ID 350,000, so min. pension is 143% of min. wage). | 50% of minimum wage with 15 years of contribution, increasing to 80% of minimum wage with 30 years of contribution |
| Livelihood allowance | 1% of the pension per year of service | None |
| Education-related allowances | Additional boost of 5% (diploma), 10% (bachelors), 15% (masters), or 20% (doctorate) | None |
| Survivor benefits | 80% for 1 eligible survivor 90% for 2 eligible survivors 100% for 3 or more survivors |
Spouse and children (Category A): 60% for one survivor, 70% for two, 80% for three or more If no Category A dependents, then 10% goes to each Category B survivors (siblings, parents, etc.) up to a maximum of 20% |
Iraq: Proposed Reform of Key Parameters of the Contributory Public Pension System
| Public pension parameters | Current Law | Reforms |
|---|---|---|
| Retirement Age | 50 (mandatory age 60) | Increase to 65 – for new entrants - and eventually link to life expectancy |
| Rules for Early Retirement | Disabled and women taking care of children can retire early without penalty | Apply actuarially fair factors for pension reductions for early retirement |
| Rules for Delayed Retirement | Mandatory retirement at 60 (with some exceptions) | Mandatory retirement at age 65 |
| Post-retirement Indexation | Not specified in law (ad hoc) | Automatic indexation to inflation |
| Incremental Replacement Rate (Accrual Rate) | 2.5% | 2% |
| Number of Last Years for Wage Base Calculation | Last three years | Entire career average wage (gradual transition) |
| Minimum pension | 500,000 ID (Note: Min wage as of 04/20/2022 is ID 350,000, so min. pension is 143% of min. wage). | 50% of minimum wage with 15 years of contribution, increasing to 80% of minimum wage with 30 years of contribution |
| Livelihood allowance | 1% of the pension per year of service | None |
| Education-related allowances | Additional boost of 5% (diploma), 10% (bachelors), 15% (masters), or 20% (doctorate) | None |
| Survivor benefits | 80% for 1 eligible survivor 90% for 2 eligible survivors 100% for 3 or more survivors |
Spouse and children (Category A): 60% for one survivor, 70% for two, 80% for three or more If no Category A dependents, then 10% goes to each Category B survivors (siblings, parents, etc.) up to a maximum of 20% |
15. These reform options can preserve SPF reserves in the near term and reduce the burden on the government budget in the medium to long term, enhancing the SPF’s sustainability. Relative to the SPF status quo provisions and the assumed baseline civil service path, the reform options can ensure that budgetary support for the SPF is contained in the medium term, and the fund approaches financial sustainability in the long term. While reserves are expected to be exhausted by 2024 in the baseline, reforms applied to all employees – new entrants and future service of current employees – will extend the life of SPF reserves by two years to 2026 (2025 if reforms are applied only to new entrants).14 Critically, the required budgetary support path thereafter is substantially lower in both reform scenarios relative to the baseline. The monotonic increase in required budgetary support in the baseline will put sizable pressure on public finances. Implementing parametric reforms for all members of the public sector will ensure that required budgetary support is contained at around 1 percent of GDP for the next three decades, gradually decreasing thereafter
16. Reforming the rules around benefits and eligibility is particularly pertinent given challenges with enhancing the revenue stream of the SPF. The SPF receives revenues from two sources: (1) employer-employee contributions, and (2) returns on invested reserves. Contribution rates are already significant (10 percent for employees, 15 percent for employers). Increasing the employee share of contribution rates might run into political economy constraints. Increasing the employer share will only reallocate expenditure from pensions to wages in the budget. Further, the required aggregate long-term rates to balance the SPF are estimated to be exorbitantly high and not feasible.15 Protection of SPF reserves from market volatility implies the need for low-risk investments which, in turn, will limit potential returns on invested reserves. Therefore, the focus of reforms should be on making the rules around eligibility and benefits equitable and adequate, simultaneously ensuring sustainability of the SPF.
17. Ultimately, a pension system that covers public and private sector workers with a common set of rationalized parameters will ensure an effective balancing of principles of reform. Effective incentives will enable economic participation, strengthen portability of benefits, and foster private sector development. Greater job security and a stronger pension system in the public sector distort incentives in the labor market, depriving the private sector of critical human resources and hampering its growth. Strengthening the portability of benefits between the public and private sectors will encourage labor mobility across sectors, help to rebalance labor markets, and promote private sector employment. Equalizing benefits across sectors will reduce incentives for the labor force to prefer the public sector over the private sector. Raising the retirement age will eliminate perverse incentives for individuals to retire early, reflect the increase in life expectancy more accurately, and increase intergenerational equity. Authorities should also consider measures to incentivize workers to retire later and contribute economically for longer in line with rising age expectancy, such as including higher benefits for later retirement, reducing obstacles for employers to retain or hire older workers, or increasing employability of older workers. In addition, the authorities should explore options to better assist old-age persons who are not covered by any of the pension schemes.16
18. A well-crafted transition plan will be key to the success of pension reforms. A gradual transition to a system with rules that are in line with international social security standards and best practices will loosen political economy constraints. Ensuring that the reform has the buy-in of a large group of stakeholders across the bureaucracy, political leadership and employees will increase credibility and protect it from political pressures during electoral cycles. These reforms will have to balance principles of financial sustainability with adequacy, coverage, efficiency, and equity. Further, long-term sustainability will also need to account for the evolution of the civil service path, private sector growth, and the private sector pension system. The impact of pension reforms on incentives to join the civil service, and the impact of civil service reform on the financial sustainability of the SPF will have to be jointly considered.
Prepared by Ali Abbas and Gee Hee Hong, as part of a tripartite collaboration between the IMF, ILO, and World Bank, with the support of the Government of Iraq. Options for reform of the broader national pension system including the pension scheme for private sector workers and other budget-financed schemes will be discussed in the forthcoming joint policy paper (IMF/ILO/World Bank) titled “Towards an inclusive, equitable and sustainable pension system in Iraq", produced by the three institutions under the IMF-ILO Global Partnership on Social Protection.
While these beneficiaries had contributed to the previous pension system, their contributions were not transferred to the State Pension Fund.
Contributions to the SPF were set at 7 percent of employees’ earnings (sum of base salary and allowances), with the government contributing 12 percent of the same base. The mandatory retirement age was set at 63, with a vesting period of 15 years of service.
Survivors include sons or brothers up to the age of 18 years (22 years if continuing with higher/secondary schooling, and 26 years if continuing with university education); daughters or sisters if unmarried and without a Shari’a provider; widowed, unmarried wives; and husband or father if they have a complete and permanent disability (disability included being above the age of 63).
Pension payouts are not automatically indexed to inflation but are adjusted on an ad-hoc basis, with the most recent change (to minimum pensions) implemented in 2020.
For example, eligibility for survivor benefits covers single/widowed/divorced daughters, parents, and single sisters, etc. while in the rest of the world only spouses and children are generally defined as eligible. The qualifying conditions for survivors do not include an age limit or, in the case of spouses, a minimum number of years a person needs to be married to the principal beneficiary, while other countries, on average, use less permissive criteria for such entitlements. Finally, survivors typically receive 100 percent of the deceased’s entitlements, in line with various MENA countries, significantly higher than is the norm in other regions of the world where entitlements are capped at 50 to 70 percent.
Smoothening over the drop in the GDP denominator in 2020 and the atypical hiring freeze that affected the numerator in 2021, the three-year average wage bill during 2019-2021 was 16.2 percent of GDP.
SPF balances were simulated using ILO actuarial and World Bank PROST models.
Baseline projections use results from the ILO’s actuarial and World Bank PROST models and are based on the UN Population Division labor market and population forecasts for Iraq and IMF staff’s macroeconomic projections.
Such principles are expressed and codified in internationally agreed Social Security Standards, such as ILO Convention 102 on Minimum Standards of Social Security, which Iraq is in the process of ratifying.
Several countries in the region are moving towards integrating their public and private pension systems (or harmonizing parameters across the two), such as Jordan, Egypt, Bahrain, Saudi Arabia, and Oman.
IMF, ILO, and World Bank. (forthcoming) “Towards an inclusive, equitable and sustainable pension system in Iraq”. IMF-ILO Global Partnership on Social Protection.
These allowances are regressive, benefiting high-income employees more in retirement relative to other employees, and, in the case of the education allowance, for example, can lead to double counting: an employee with a higher level of education would expect higher wages over the course of their career (and higher pensions), and would get an additional boost in pension payouts due to the education allowance.
To recognize acquired rights and take into consideration political feasibility, reforms can be implemented gradually, with partial application of rule changes to current members. However, such a strategy must consider the trade off with intergenerational equity.
Required contribution rates: 48.4% for next 10 years, 64.3% for next 20 years, and 78.9% for the next 30 years.
Different mechanism designs to enhance coverage of the uninsured will be explored as part of the broader reform agenda to be discussed in the forthcoming IMF-ILO-World Bank joint policy paper. Such reforms can take the shape of measures to enhance the effective coverage of the private sector scheme, budget-financed pensions for the uncovered, or targeted cash transfers. Improving efficiency in allocation of public finances can expand fiscal space to extend coverage to the uninsured through the above measures.
