Proposed Amendment to Social Security Scheme Highly Debatable

A woman working for an IT wholesale company was looking forward to collecting a 40,000 Br provident fund from the company where she had been employed for the past 18 years. Now she is not certain anymore – that is, if the new social security Bill tabled in Parliament is approved before the parliamentary season is over and if her employer has not given her the provident fund payment collected for her before the approval.

When the government brought the scheme by which the private sector was embraced in the social security scheme in 2011, after a proclamation issued for the establishment of the Private Organizations’ Employees Social Security Agency, it was the choice of employees in private sector organisations whether to stay under the provident fund or get into the pension fund. But this right will be denied by the new Bill which has been approved by the Council of Ministers.

Although it was in 1963 that the government of Ethiopia introduced the social security scheme in Ethiopia before any other African country, it was not a smooth and wanted move for the private sector. The 1963 social security scheme was only for the permanent employees of the public sector.

When the Dergue regime came in 1974, nationalising private companies, the employees in these organisations came under the umbrella of the public sector employees social security scheme widening its reach.

When the transitional government came in 1987 overthrowing the Dergue and returning confiscated private properties, employees went to privately owned organisations with their own scheme.

This extended up to 2011 when a landmark change brought a more flexible proclamation allowing both pension and provident funds in the scheme.

“The whole process until then was very progressive but stable; not destructive like this one,” said Mehari Redae (PhD), assistant professor at the Addis Abeba University’s School of Law. The current Bill that is being reviewed by Parliament’s Social Affairs Standing Committee chaired by Abeba Yosef is more stringent than the previous ones.

Mehari sees that the Bill was prepared in a hurry with an intention of implementing it starting from July which marks the beginning of the new fiscal year.

“This is being done to bring uniform and comprehensive social security in the country without even considering the relationship it has with other laws of the land,” says Mehari.

The new Bill proposes that employees have pension contributions deducted from their salaries after one month on the job contrasting with the labour law of the country that gives a 45 day probation period for the organisation to decide whether to employ the recruit. This period is also for the employee to decide whether to stay on the job or not.

“This is unfair,” Mehari said.

Confused by the amendment’s unfamiliar parts, the Confederation of Ethiopian Trade Unions (CETU) has written a letter of explanation dated June 9, 2015 to the Agency.

“We have been part of the discussion but the article that states the transfer of the provident funds to publicly manage private funds was not discussed at the level of the Board that oversees the Agency in which we are the members,” Kassahun Folo, president of CETU told Fortune.

But, as Kassahun said, the other parts like the non-inclusion of temporary employees into the pension fund were what they were requesting for amendment.

For Mehari, who saw the Bill as more stringent and full of risky decisions, the amendment was intended for two purposes – bringing social security accessibility for all of the people and fund-raising.

“But sadly, none of these is to be accomplished by the law,” he asserted.

In fear of the new law to be drafted, employees in the provident fund scheme are urging their employers to give them their money as soon as possible.

Another person who also wanted not to be identified told Fortune that she and her 40 colleagues had requested their employer to give them their benefits from the fund.

In 2011, when the pension fund scheme for private sector employees came, she had had 7,149 Br as provident fund. But currently she fears she is going to miss even bigger than that.

“I have worked for eight years and I might now miss as much as 40,000 Br, which is enough to start a new business,” she said.

The reason why she remained with the provident fund was that she did not want to stay employed for the whole of her life.

With all of the employees withdrawing their money, the intention of the government to raise funds from the scheme is likely to misfire. What the experts fear is employment insecurity which will be more impactful than all of the pains that could come with the amended proclamation.

As the law comes with the mandate that all employers ensure that their employees are covered under the pension fund, be it the temporary or the permanent, they are going to incur an additional 11pc cost on the total salary expenses.

The 2011 proclamation compels private sector employers to contribute 11pc of the employee’s salary for the pension fund and the employee to contribute seven percent of the salary which is channeled to the common treasury for administration.

But, temporary employees were not required to make the pension fund contribution, which the new law wanted to make mandatory. This will cost the company higher than its previous expenses. The increase in the labour cost again brings decreased investment flow that is attracted by the low cost of labour.

“But companies will start employing on a daily basis, which leads to employment insecurity; this is more consequential than the social security,” Mehari fears. “Let alone employees having social security; they will not have any jobs.”

As it is made in a “hurry”, the law lacks basic parts like how the money to be transferred from the provident fund to the pension fund will be administered.

But rather than coming to this conclusion, the Agency should have considered administering the provident fund as it is, by creating mechanisms, according to the expert.

“It is even better to have a diversified system rather than one,” Mehari stressed. “It is shallow thinking if social security is thought to come only through pension – laws do not bring that; there need to be extra legal systems.”

These additional regulations include making the organisations report their savings to the Agency and having administrative follow up.

“The law is to help the employees to sustain themselves and their families well,” said Fisehatsion Biyadgilign, member of the Board that administers the Agency represented by the CETU. “There are people that take the money and spend it inappropriately.”

Although there are some that do so, the rationale behind this is unacceptable to Mehari.

“This thought emanates from the belief that the people cannot make rational decisions,” he says.

Tesfaye Gashaw, the Agency’s communication director, supported the Bill via posts on its Facebook page.

“In developing countries like ours, the preferable scheme is following the social security line as experienced in other countries,” states the post.

The Agency declined to say how much money private employees have contributed to the pension fund; but it says that there are 105,723 private employers and 810,678 private employees in the pension fund system.

The CETU says that it has 103,471 members, which employ 798,841 people, according to Fisehatsion. From these employees 6.5 billion Br has been collected in four years since 2011.

Mehari sees the law as a non-priority for the current Ethiopian social security status, and suggests what should have become the focus of the country.

Before letting it go, the parliament needs to look into these consequences that are to follow the law.

“They need to stop a while and think before passing it,” suggested Mehari.

The Bill will be debated by the Parliament’s Social Affairs Standing Committee on Monday, June 29, 2015, about one week before the Parliament closes on July 7. If not approved by this Parliament, the fate of the Bill will be decided by the newly elected Parliament in the new fiscal year.


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