US embassy cable - 02KUWAIT5179

UNCLAS KUWAIT 005179 
 
SIPDIS 
 
SENSITIVE 
TREASURY FOR OASIA 
 
E.O. 12958: DECL: N/A 
TAGS: PGOV, EFIN, ECON, KU 
SUBJECT: (SBU) BANKRUPT BY 2026: KUWAIT'S LOOMING SOCIAL 
SECURITY CRISIS 
 
 
(U) SENSITIVE BUT UNCLASSIFIED; PROTECT ACCORDINGLY.  NOT FOR 
INTERNET DISTRIBUTION 
 
1. (SBU) SUMMARY: Important enough to disrupt the opening of the 
National Assembly, a draft amendment to the Social Securities 
law is the subject of hot debate between Government ministers 
and MPs.  Kuwait's liberal retirement policies have created a 
sense of entitlement which may soon be betrayed; without changes 
to the law, the Social Securities fund will be bankrupt by 2026. 
Even Government proposals which are unpopular with the National 
Assembly will only delay rather than avert the crisis.  END 
SUMMARY 
 
2. (U) In the last session of the National Assembly, MPs voted 
to amend the current Social Securities act (Law 25), but their 
draft amendment, which would have put additional strain on the 
budget, was returned to the National Assembly by the Amir.  The 
vote to override his veto failed to gather the necessary two- 
thirds majority and so the draft law was held over to the 
current session.  Arguments over voting again on the draft 
amendment marred the opening day of the National Assembly, and a 
special session to discuss the issue is set for December 30th. 
The Public Institution for Social Security will meet with 
parliamentary committees November 25th to plead the Government's 
case.  If the National Assembly passes the amendment by a simple 
majority, it will become law automatically; the Amir cannot veto 
it again. 
 
3. (U) Under Law 25, all Kuwaiti males who have worked for 15 
years are eligible to collect their retirement starting at age 
50, while those who have 20 years of service can collect 
starting at age 45.  The age of eligibility is subject to a 
sliding scale-- it will increase every three years until it hits 
age 55 in 2017. Women with 15 years of service can collect their 
pension at age 45.  The pension consists of 65 percent of the 
last month's salary, plus 2 percent for each year of service 
beyond 15 years.  The maximum benefit is 95 percent of the last 
month's salary. 
 
4. (U) The draft amendment as passed last session would make 
four changes to Law 25.  It would (a) remove the minimum age 
requirement for men engaged in hazardous work, (b) slow the rate 
at which the age of eligibility advances to make it 55 by 2020, 
(c) increase the pension by 50 dinars per month for anyone 
receiving less than 700 dinars per month, and (d) remove the 
minimum age requirement for women. 
 
5. (SBU) The Government has a counterproposal which it hopes 
will pass in the National Assembly: (a) and (b) as paragraph 4 
above, (c) increase the pension by 50 to 200 dinars for families 
with five children or more who receive less than 650 dinars per 
month, and (d) set the minimum age for women to retire at 40, 
sliding to 50 by 2017.  More and more women enter the workforce 
every year, and the Government is especially interested in 
regulating their retirement age and benefits because women tend 
to work fewer years at lower salaries, therefore contributing 
less to the fund. 
 
5. (U) The Social Securities fund currently has three sources of 
income: employee contributions (5 percent of salary), investment 
income, and government transfers.  In 2002, the fund will take 
in about 640 million dinars and needs to pay out about 510 
million dinars in benefits.  If the draft amendment proposed by 
MPs in the National Assembly is voted into law, the Government 
predicts that the money taken into the fund will equal the money 
that must be paid out in 2011.  After that, the Public 
Institution for Social Security will have to pull capital out of 
the investment fund in order to pay pensions, and by 2026, the 
social securities fund will be bankrupt. 
 
6. (SBU) COMMENT: Officials at the Public Institution for Social 
Security acknowledge that the Government's counter-proposal will 
postpone rather than solve the looming crisis.  The Deputy 
Director is worried not about the younger generation who can 
perhaps still be taught not to rely on the government, but about 
the middle-aged generation who will have nothing to fall back on 
if the government safety net is reduced or withdrawn. The 
Government faces an uphill battle to convince the National 
Assembly to vote to limit benefits during an election year, but 
is pushing hard to show MPs that under the proposed amendment, 
the Social Security fund will start to lose money in only nine 
years.  Even if the Government succeeds, it must still seek a 
solution to the ever-growing Social Security problem, and may 
have to choose between the unpopular alternatives of increasing 
employee contributions or cutting benefits in order to make the 
money last longer.  Kuwaitis may have to face the hard reality 
that even oil money has its limits.  END COMMENT 
 
JONES