Retirees in Algeria

Algeria’s pension system not as effective as intended

8 mins read

The pension system in Algeria has been facing financial difficulties these past years and it would have collapsed already without the state’s subsidies. Pensions in Algeria are administered by two funds namely the National Fund of Retirement (CNR[1]) and the National Fund of Insurance for Non-Salaried Workers (CASNOS[2]). The former manages the pension for employees and the second fund administers pensions for self-employed workers and employers. 

The pension system in Algeria works under the principle of pay as you go, which means that the current contributions serve to cover the current pensions of the elderly. Hence, the financial equilibrium of the system is only guaranteed if the number of contributors (workers) is sufficient to cover for the retirees’ pensions. In Algeria this ratio (contributors/retirees) is not sufficiently high to insure the equilibrium according to available statistics; the national employment survey of the Office of National Statistics (ONS) estimates the number of workers at about 10,239,000 in 2014. Those workers are made up of employees that are supposed to be affiliated and contribute to CNR and non-salaried workers that are supposed to contribute to the CASNOS. However, a big part of workers (42% in 2014 and 43% in 2018) are not affiliated to any retirement/social insurance fund according to the ONS national employment survey. 

While the number of CNR retirees was 2,630,362 in 2014, only 5,077,000 employees were contributing to the same fund. This is to say that the ratio contributors/retirees is about 1.93, which is very low. It seems that the situation did not improve since 2014. The aggregated data in 2018 shows that the total number of contributors to social security is 6,274,000 (ONS, 2018), in the meantime the number of retirees is 3 217 503 (for an availability issue, this number does not include the retirees of the CASNOS) which means that we have 1.94 contributors for one retiree. This ratio is low, given that the contribution rate to the retirement system is 18.75% (7% for CASNOS) but the replacement (pension) rate can reach 80% with respect to the length of the worker’s active life.

Given the aforementioned contribution and replacement rates, the adequate ratio (contributors/retires) which would guarantee a decent pension for retirees, should be equal to 4.27 contributors for one retiree. Indeed, I will here provide a simple exercise allowing people unfamiliar with pension economics to understand a usually complicated issue. This exercise does take into account all the pension system parameters but can explain the issue in a straightforward way.  If we rely on the ONS data showing that the average monthly wage in the Algerian economy is equal to 40,325 DZD. This means that each employee will contribute an amount of to 7,560 DZD (18.75%*40325). On the other hand, we need to cover an adequate pension of 32260 DZD (80% of the average wage) for each retiree. Hence, we need 4.27 (32260/7560) contributors for each retiree to make the pension system, at least the CNR fund, sustainable.

The problem of pensions as summarized above could be handled using several solutions and approaches. Some authors argue that retirement systems don’t necessarily need to be financially sustainable, their first mission is to take care of the elderly (Dupuis, 2015) and it’s fine to continue subsidizing them from other taxes and state revenues. Other authors suggest changing the parameters of the system such as delaying the retirement age, increasing the contribution rateor decreasing the pension (replacement) rate(El Mouden, 2006). Such reforms could end up punishing the workers/retirees.

In my humble point of view, such changes are not suitable for developing countries; the priority of pension and social security systems in developing countries is expanding coverage to all the categories of the population. Algeria needs first to extend social security and retirement coverage to all the economically active population. This will allow the country to have additional income for retirement funds, improve societal coherence and avoid having people outside the system such as in the case of some  elderly living without a pension. 

The second suggestion to handle the problem of the retirement system’s sustainability is to increase the productivity of workers, hence their wages. This would allow an increase of the social security’s income and pension funds given that the contributions are proportional to wages. This suggestion was argued in the “White book on retirement” (1991) and many other scientific articles dealing with the issue of pension and labor market (Blanchet, 1992). Hence why, it is primordial to seriously discuss how to increase workers productivity in Algeria.

Last but not least, the third solution consists of increasing the number of workers by creating new firms and encouraging enterprises to declare their workers to social security. Of course, this employment process creation needs to be accurately studied to avoid creating precarious jobs.  

Given that pensions are strongly linked to employment issues, it’s worth to comment on the employment programs and the Active Labor Market Policy (ALMP) in Algeria; without denying the role of those policies in decreasing unemployment rate during the last 10 years, I believe that those policies lacked efficiency and have mainly created precarious jobs.

I will mention three reasons showing the lack of efficiency of those ALMP programs: 1) the employment programs aimed to create a 1 or 2 years temporary jobs just to help the unemployed youth in accessing the labor market and then emancipate towards full time employment. However, those programs have been renewed for many beneficiaries and for more than two years according to the administrative data. 2) In addition to this long period of employment in those programs, the wages of the employees are lower than the minimum wage and the beneficiaries are not covered against elderly risk and do not contribute to the CNR. This extends the precarious situation of the beneficiaries. 3) The third reason why I believe that ALMP programs in Algeria were not sufficiently efficient is that the firms created thanks to ANSEJ[3], CNAC[4]and ANGEM[5]have not created jobs; on average only 1.5 jobs have been created by such firms, according to ANGEM and ANSEJ data (annual reports).

[1]Caisse Nationale des Retraites.

[2]Caisse Nationale des Assurance des Non-Salariés.

[3]Agence National de Soutien à l’Emploi des Jeunes

[4]Caisse National d’Assurance Chômage.

[5]Agence National de Gestion de Micro crédits 

Walid Merouani is a researcher for the Centre of Research on Applied Economics for Development (CREAD-Algiers); and the Centre of Research on Economics and Management (CREM-CNRS-France). He is an expert in the economics of pension systems and social protection.