Lebanon is one of two countries in the region and one of 16 countries worldwide that does not have a comprehensive pension system. The roots of this issue go deeper than the notorious mismanagement of the country’s social protection schemes and is exemplary of the political economy model that governs it. In fact, the lack of a pension scheme is a manifestation of elite capture of state resources and the country’s hierarchical structures of welfare that are dependent on political allegiance. 

Today, the financial collapse has had severe repercussions on the National Social Security Fund (NSSF), the largest social insurance provider in the country, putting the last nail in the coffin of an institution that has been eviscerated by the country’s political elite. While the NSSF’s demise has left major gaps in coverage, particularly in healthcare and old-age benefits, the current situation provides an opportunity to reform its enfeebled systems from scratch, starting with a new pension scheme.

The Pensions Landscape in Lebanon

In Lebanon, the social insurance system is heavily fragmented. Different entities cover various types of employed and retired persons, the most important of which is the NSSF, the military pension scheme, and the Cooperative for Civil Servants (CCS).

The social security law of 1965 created an End-of-Service Indemnity scheme (EoSI) within the NSSF, which provides individuals with a lump-sum cash benefit upon retirement. Though initially meant to be a temporary placeholder until a pension scheme is established in Lebanon, the EoSI remains in place over 57 years later.  

 The system is notoriously ineffective, it is only available to those employed in the formal sector, thus excluding a major part of Lebanon’s working population, and it adds strain on employers and employees alike. An individual’s most recent employer is expected to cover a significant part of the lump-sum upon retirement, which in turn exerts financial pressure on smaller commercial institutions and may increase their tendency to deformalize. Moreover, the lump-sum amount provided is not adequate enough to provide income security during retirement. By some estimates, even before the crisis, a lump-sum for 30 years of employment would only cover about 7 years of retirement, versus a life expectancy at least twice that amount.¹ Today, inflation and the depreciation of the Lebanese Pound (LBP) have caused already received end-of-service indemnities and of the accumulated accounts of future retirees to lose 90% of their value.

On the other hand, civil servants fall under a different benefits system. Covered by the CSS, they are offered far more adequate benefits. Civil servants can opt for a lump-sum or a lifetime pension plan in which they are paid on a monthly-basis a figure amounting to 85% of their last salary. Unlike end-of-service lump-sums, these pensions can be adjusted to inflation. Military and security personnel are covered by additional guarantees that are even more generous in terms of amount. While the value of civil service and military pensions has also been largely eroded by inflation, the inequitable financing model of these funds placed the burden of their financing on taxpayers. In fact, two-third of public spending on old age and survivors benefit the public sector.²

Political economy roots

Workers hierarchy and political allegiance

Privileging the benefits provided to civil servants and military personnel is symptomatic of the structural ills of the Lebanese political system. The notoriously inefficient Lebanese administration has been used as a major vehicle of clientelist employment to supporters of the traditional political parties in the country. In fact, personnel cost has been the largest expenditure item in the Lebanese budget since the end of the civil war, averaging 37% of the total expenditure. This system created a hierarchy of workers in which the levels of social benefits are largely a function of loyalty and usefulness to the ruling elite. The system naturally favored the security and justice apparatus, followed by other civil servants much at the expense of taxpayers’ money. Formal private sector workers were second to last in the hierarchy, with informal workers placed at the lowest strata.

Today, in light of the crisis, informal and irregular workers make up the largest portion (62%) of the work force.³ Despite this, the ruling elite doubled down on this hierarchy, favoring civil servants and military personnel, while formal and informal workers are left to their devices. In fact, 74% of the country’s discretionary spending from the budget reserve or through treasury transfer since August 2019 has been for the benefit of civil servants.⁴ Meanwhile, the government still owes the NSSF close to 4 trillion LBP.⁵

Ponzi Social Insurance

Similar to other state institutions, the finances of the NSSF were captured by the country’s political elites. In fact, 81% of the NSSF’s assets in 2018 comprise treasury bonds, state arrears, or now-frozen bank accounts in Lebanon’s financial sector.⁶ A big portion of these assets have been rendered completely obsolete today, as the state and the banking sector are in default.