Demographic changes lead to pension reform in Morocco

Moroccans benefit from a comparatively extensive social safety net, including a fairly large and generous pension scheme that begins at age 60 for government workers. However, a slowdown in hiring, combined with a demographic bulge that is on the verge of retirement, has combined to stretch the finances of the pension system – a challenge that is facing governments the world over. The Moroccan government, with IMF support, is pushing for reform of the system, but discussions have been slowed given opposition from trade unions, which have expressed concerns over the broader impact of any reforms, along with subsidy cuts, to the cost of living in the kingdom. The two sides have been holding talks in recent months to try to resolve their differences over pension reform in particular.

Pension Crisis

In November 2014 the IMF described reform of Morocco’s pension system as urgent. Ahmed Kherrazi, director of special dossiers at the Social Security Department of state investment firm Caisse de Dépôt et de Gestion, told OBG that the Caisse Marocaine des Retraites (CMR), one of the two major pension funds for government employees, would become bankrupt by 2021. He also said two other major funds, the Caisse Nationale de Sécurité Social (CNSS), which covers private sector employees, and Régime Collectif d’Allocation de Retraite (RCAR), which covers government workers not provided for by the CMR, could run into similar problems by 2042 and 2037, respectively.

Other contributing factors include the fact that around 30,000 civil servants covered by the fund retire every year while only 25,000 new civil servants are hired annually. As a result, while there were previously up to nine or 10 civil servants working for every retiree, the figure has dropped to around three. Life expectancy in the kingdom has also increased more rapidly than expected, resulting in pensions being paid for longer periods than were planned for.

Reforfm Plans

To avoid the threat of the CMR’s collapse, the government is currently proposing that the retirement age for most government workers be raised from 60 to 62, and then continuously raised by another six months every year until it reaches 65 years of age. The authorities are also calling for an increase in contributions to the scheme by both workers and their employers and proposing a reduction in the value of pension payments from the current figure of 2.5% a year of a worker’s final salary to 2% of his or her average salary over the last eight years of employment.

In the medium term, the government is also proposing that the two public sector pension funds be merged into a single entity and for the same to happen to funds covering private sector workers.

The authorities are also planning to eventually extend pension coverage over the longer term. “Up to 8m people are still not covered by any pension system, which will need to be addressed as part of any reform,” Kherrazi told OBG. “The intention is to begin extending coverage, most likely by the CNSS, to those employed in structured liberal professions and then gradually increase the funds’ coverage to more and more people.”

Union Opposition & Dialogue

The government’s plans to reduce pensions while raising contributions and the retirement age are unsurprisingly facing opposition from organised labour in the kingdom. In October 2014 three of Morocco’s largest trade unions held a 24-hour general strike in protest. However, despite this, Kherrazi believes unions are open to reform, but were primarily focused on seeking concessions on other issues. A recent rise in the minimum wage has also helped to mitigate tensions between the two sides. In April 2014 the government said it would increase the minimum wage by 5% in the private sector in July of that year, followed by a further 5% hike in July 2015, for a total jump of 10%, as well as increased health care benefits.

The two sides are now engaged in dialogue over the pension issue. The government initially established a national commission to discuss the reforms; however, in December 2014 the government agreed to a wider “social dialogue”. The authorities are seeking to finalise reforms before local elections in September 2015.