The Policy Initiative

  • عربي
    • share
  • subscribe to our mailing list
    By subscribing to our mailing list you will be kept in the know of all our projects, activities and resources
    Thank you for subscribing to our mailing list.

Why Lebanon Does Not Have a Pension System

Sami Zoughaib,
Cynthia Saghir

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

There have been multiple attempts to reform the EoSI scheme, starting with the 2004 old-age pension draft law, but they have all stalled, failing to yield a viable system to this day. The weakness of the current system and the resistance to reform is not the result of a lack of technical solutions or gaps in institutional and financial capacity. It is rather a conscious policy choice that serves the interests of the country’s ruling elite.


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.

As such, the funding of the NSSF benefits prior to the crisis was not through a well-managed portfolio of assets, rather through the only “profitable” branch of the fund, the End-of-Service Indemnity. The EoSI generated surpluses by design, as any gap between individual accounts accumulated through contributions and the defined lump-sum benefit is covered through settlement payments from the last employer. Many subscribers, in-need of income, also choose to cash out their indemnities prior to retirement and are subject to penalty rates on their accumulated accounts. Finally, some people, despite having contributed, are not eligible to receive their EOSI as they do not meet all the eligibility conditions.

In a way, the NSSF ran a Ponzi-like scheme in which the benefits provided through different branches of the surpluses of the EoSI branch and not through sound management of the fund’s assets.7 The difference was used to finance the notoriously corrupt state or feed into the banking sector’s own, now publicly known, Ponzi scheme. Keeping the EoSI in place, without reform, kept this system going.

Opportunity for reform

Presently, the NSSF’s EoSI model is no longer providing adequate old-age benefits to retirees. Lifelong savings at the NSSF have been eroded by inflation, and personal savings have also evaporated and are not accessible to the vast majority. The combination of these factors is letting down a whole generation of low- and middle-class formal workers, with a devastating impact on fast impoverishment in old age, at the time also when social health protection is failing and older persons face massive increase in out-of-pocket spending for health.

In the absence of any other mechanism for solidarity in financing the pension system across sectors, between workers and employers and across generations, only two futures are possible:  either employers – through the settlement payments mechanisms – will be called to fully recapitalize the pension system  or the pensions system will effectively never recover.

As such, the establishment of a universal pension system is essential to protecting persons in old age. This requires passing the draft law, which sits idle in parliament, to reform the EOSI branch into a pension scheme for private sector workers in line with minimum international social security standards and into an enhanced governance for the NSSF, as well as establishing a pillar zero for the system that could also provide protection to older persons who have worked in the informal sector, had intermittent careers, or been excluded from the labor market. The establishment of universal tax-financed social pension is an important step among many towards building a social protection floor that protects everyone against lifecycle vulnerabilities, provides them with a basic level of income support, and prevents them from falling (further) into poverty.8  

Reforms to the NSSF can challenge the status quo of a patronage system that treats social protection not as a right, but as a privilege.




1. International Labour Organization estimates. (Unpublished)

2. Institut des Finances Basil Fuleihan. 2021. “Social Protection Spending in Lebanon: A deep dive into state financing of social protection.”

3. Central Administration of Statistics & International Labour Organization. 2022. “Lebanon Follow-up Labour Force Survey – January 2022 Fact Sheet.”

4. Saghir, C. and W. Maktabi. 2022. “Lebanon’s discretionary spending favors public sector employees.” The Policy Initiative.

5. Merhej, K., and K. Chehayeb. 2022. “The Full Story Behind the Looming Collapse of the National Social Security Fund.” The Public Source.

6. ibid

7. ibid

8. “A Social Protection Emergency Response” (The Lebanese Center for Policy Studies, January 21, 2020)

From the same author

view all

More periodicals

view all
Back to top