An overview of the financial position of the public Authority for Social Insurance

Article (11) of the Social Security Law states that the Authority’s financial position to be examined at least once every three years with the knowledge of an actuary through a periodic actuarial study. The seventh actuarial study was conducted as is the situation on 31/12/2014 by the actuaries’ experts from the International Labour Organization. The next (eighth) actuarial study was conducted in 2018, as is the situation on 31/12/2017.
In this article, Shabib al Busaidy, Assistant Expert for Insurance Affairs at PASI, discusses the key goals of the study:

Shabib al Busaidy
Assistant Expert for Insurance Affairs

Definition of actuarial studies:
Al Busaidy says the actuarial study of pension funds can be defined as a study that calculates future cash flow projections of the fund in order to assess financial position of the fund, determine participation rate required to finance its expenses, and study indicators and other characteristics of interest to the fund. He adds: the basis of the actuarial study is the actuarial model, which is an arithmetic programme that tries as much as possible to simulate the mechanism of the fund’s work in terms of calculating financial movement (cash flows), depending on demographic and economic expectations of the state and the fund, such as the expectation of the state’s population, workforce, and the number of participants in the fund, Inflation, number of retirees, investment income, etc.
Al Busaidy also mentions that actuarial study of pension funds is considered the master plan upon which the rest of the elements of pension funds are based, as the design of pension or insurance schemes is based on them. Therefore, this design converts into a legal text including benefits and their values, contributions, investment policies, risk management and financing policy, etc. Subsequent actuarial studies look into the changes that have occurred in the economic and demographic aspect of the country. They also study the fund’s financial ability to fulfil its obligations towards the current and future generations. If there is a defect, the study proposes amendments to the design, including the value of contributions, benefits or their conditions, or it can propose change in investment, risk management policies or financing policy to ensure that the fund is able to fulfil its obligations and sustainability.

The importance of actuarial study:
According to Shabib al Busaidy, to understand the importance of the actuarial study, it is necessary to understand the mechanism of pension funds. The diagram shows the mechanism of pension funds, whereby they receive contributions so that these amounts are spent on administrative expenses and benefits, while surplus is transferred to be invested. Consequently, the value of the reserve accumulates as a result of surpluses (contributions – expenses) and investment income. The reserve is used only in the event that contributions were not sufficient to pay total expenses. The process begins with the use of investment income to cover the shortfall and then liquidation of the assets (the reserve) at a later stage if the contributions and investment income were not sufficient to cover the expenses. The actuarial study calculates the future cash flow projections of the fund for a period of time that may extend 100 years, based on this mechanism of work. Therefore, the actuarial study will clarify the time period of three main points, which are:
n The date when the contributions are less than the expenses for benefits and administrative expenses, and therefore the necessity to use investment returns to cover the expenses.
n The date on which the total returns from contributions and investment are less than the expenses for benefits and administrative expenses, and therefore the need to start liquidating (selling) the assets so that the expenses are covered.
n The date on which the assets are exhausted or all sold (the value of assets (reserve) = zero). Therefore, there will not be an investment return, and this is a point that must be avoided. Thus periodic actuarial studies suggest solutions to avoid reaching such a dangerous situation by proposing amendments in the design, including the value of contributions, benefits, conditions, or amendments to investment, risk management or financing policies, to ensure that the fund is able to fulfil its obligations and sustainability.

Mechanism of pension fund:

Legal protection of wage

Sami bin Said al Abri
Legal executive at the
Legal Department

Definition of wage and the means of protection imposed by wage legislation:
Initially, it is important to find out the definition of wage that a worker receives for his work. There have been many definitions of wage in various legislations, while the Omani Labour Law issued by Royal Decree (35/2003) defines the basic wage as “the compensation agreed between the worker and the employer in cash and fixed in the work contract plus the periodic allowances”.
It also defines the comprehensive wage as “the basic wage plus all other allowances that are decided for the worker in return for his work”.
Whereas, the definition of the wage in Social Security Law issued by Royal Decree No. (72/91) is as follows: “Whatever given to the Insured Person in cash or kind on a periodical or regular basis in return for his work, regardless of the determination method of the Wage, or the total basic Wage plus the increments determined by a decision of the Minister after the approval of the Board of Directors.”
The importance of providing a legal protection for wage comes as it is often the only source of income for the worker, on which he relies for living and satisfies his daily life needs. Thus, any prejudice to the wage of the worker in any way, it is undoubtedly prejudicial to the living of this worker and his family. Therefore, we find that the legislator has granted the wage a special protection by entrenching many principles and legal frameworks that guarantee the worker to obtain his wage, and prohibits the employer or any other party from depriving the worker of his wage or detracting it except within very narrow limits that will be addressed with more details onwards.
The employer is not entitled to alter the method of wage or remuneration with his own will; that is, he can’t transfer a worker with a monthly wage to the category of daily wage or to the category of workers appointed with weekly wages, per piece or hour, except with the consent of the worker in writing, according to article (57) of the Omani Labour Law. Likewise, the employer is not entitled to amend the method of calculating the wage in a manner that leads to its reduction.
In fact, there are many assurances prescribed for the worker’s to get paid, among which is that the worker’s wage is paid in advance of all the rights owed to the employer’s creditors, after the debt of alimony.
This is stipulated in article (54) of the Omani Labour Law saying “Wages, rights, other benefits, and all sums due to the worker, or to those who are entitled to him under the provisions of this law, shall have priority over all debts due on the employer, with the exception of the legal alimony. Among the other guarantees is the protection of the worker’s wage vis-à-vis the employer himself, because the worker’s wage is also paid against all the worker’s debts with the employer — except for the legally recognised alimony.
To explain, the worker may have to pay a debt, a loan, fines, or it may be due amounts to the employer as a result of destroying work tools that were in his custody and he, the worker, was proven wrong in causing damage to these tools. So, in all the aforementioned cases, the employer cannot take the full wage of the worker in order to deduct money from it. The law has set specific conditions and rates for the deduction in a way that ensures the employer gets his right, without affecting the worker or making him unable to meet requirements of his living or affecting his ability to support his family.
On the other hand, the Social Insurance Law has also created many measures to protect the wage of the worker (the insured) and ensure that he is registered in the insurance records of the Public Authority for Social Insurance with the actual wage received by the employer, in view of the direct relationship between the value of the wage subject to the contribution and the value of the insurance benefit that the worker (the person) will obtain in case he meets the conditions of entitlement established by the law.
So that the worker (the insured person) is not harmed by obtaining a less valuable insurance benefit than the one which he is supposed to deserve, due to the fact that the employer registered him with the Authority for less pay, unlike to the actual wage.
To this end, the law entrusted the Authority with the responsibility of verifying that employers register workers who work under their administration with actual wages, including the basic wage, and the correct allowances that they actually receive, in accordance with the Ministerial Decision No. (R / 8/2014) that defines the concept of the wage liable to insurance on the basis of which the monthly participation rates are calculated and that the Authority has the right to object to the allowances provided by the employer whenever it is proved that these allowances do not comply with the rules mentioned in the same decision.

End of service benefits

When does a worker in the private sector deserve end-of-service benefits without any other sums, and when does he deserve more than that (pension + grant)?
Hilal bin Said al Dhamri, Head of Beneficiary Care Affairs says: “If the insured service ended and he didn’t fulfil conditions for entitlement to the pension, he would be entitled to the end of service benefit provided that the period of his insurance is not less than a full year. The benefit is calculated on the basis of the last wage subject to the contribution that the worker received at the end of his service at the rate of one month’s wage for each of the first three years from joining insurance, and at the rate of two months’ wages for the years following the first three years. The male must reach the age of 60 years and above, and the female must reach the age of 55 and above when applying for the end-of-service benefit payment request, based on the Royal Orders to improve retirees ’pensions and end-of-service disbursement as of April 2011. End-of-service grant is paid in addition to the amount of the benefit except for retirees from other government funds, who get only end-of-service benefit without the grant”

Hilal bin Said al Dhamri
Head of Beneficiary Care Affairs

Entitlement to pension
Hilai al Dhamri explains, “As for the entitlement to the retirement pension, the insured person is entitled to an old-age pension according to his insurance contribution periods, starting from the date of the implementation of this law, whether they are continuous or separate periods, provided that the end of the service of the insured (male) starts by reaching the age of sixty or later, when his insurance participation period is at least 180 months, or if the insured (female) reaches the age of fifty-five years or later, when her insurance participation period is at least 120 months, with disbursement of the end-of-service grant.
The early old-age pension may also be paid by the end of the service of the insured person (male) before reaching the age of sixty years when the period of his contribution to the insurance is at least 240 months or for the insured (female) before reaching the age of fifty-five years when the period of her contribution was at least 180 months provided that either of them reach the age of 45. The pension due in this case shall be reduced by a percentage that is estimated according to the age of the insured (his or her) in accordance with the attached table to the Social Insurance Law.
Also, it is not permissible to pay the pension retroactively, as this pension is disbursed from the beginning of the month when disbursement request was submitted. In addition, the end-of-service grant is not disbursed for this type of pension. The pension is calculated at (3 per cent) of the average wage paid on the basis of insurance contribution during the last five years of the insurance subscription or full period. If the subscription period is less than that, the pension is calculated by multiplying the period by the number of years of the full insurance subscription, with a minimum of RO 202.500 and a maximum of 80 per cent of the monthly average wage indicated.

Oman Observer