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Al-Haq’s Comments on the Law by Decree on Social Security and its Complementary Regulations and Instructions

Wednesday, 02 January 2019 15:13 By: Dr. Isam Abdeen
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Al-Haq’s Comments on the Law by Decree on Social Security and its Complementary Regulations and InstructionsExecutive Summary

  1. Social security is a fundamental human right, enshrined in Article 22 of the Palestinian Amended Basic Law. Article 10 of the Basic Law emphasises that basic human rights are binding and shall be respected. The right to social security is also safeguarded by the International Covenant on Economic, Social and Cultural Rights (ICESCR), which the State of Palestine acceded to without reservations. Article 9 of the Covenant provides that “[t]he States Parties to the present Covenant recognise the right of everyone to social security, including social insurance.” The State of Palestine is bound to realise this right on legislative, policy and practical levels. In this vein, the State of Palestine needs to demonstrate the “progress achieved” in the forthcoming discussion of the initial report it will submit under articles 16 and 17 of the ICESCR to the United Nations Committee on Economic, Social and Cultural Rights.
  1. There is a weakness in the institutionalisation of social security management as well as lack of organisational structure and financial and administrative regulations needed to govern the work of the Social Security Corporation (SSC). This contradicts with the Law by Decree on Social Security (thereinafter “Law by Decree”), which emphasizes that the SSC should enjoy full financial and administrative independence from the Government. Nothing under all 124 articles of the Law by Decree vests the Chairman of the SSC Board with any powers other than managing the Board’s meetings. The provisions of the Law by Decree focus on the Board as an integrated institution. However, the performance of the Board’s Chairman is at odds with the Law by Decree as he is confusing his role as the Minister of Labour with that as the Chairman of the SSC Board. Among other things, this confusion has manifested in the “instructions” issued forth by the SSC Board, complementing the Law by Decree. The SCC Board base their instructions on the provisions of the Basic Law, which regulate the powers given to the “ministers”. Moreover, the Chairman of the SSC Board signs these instructions in his capacity as the Minister of Labour, contradicting the Law by Decree, which clearly provides for the independent juridical personality as well as administrative and financial independence of the SSC.
  2. These challenges are more visible in the mechanism, according to which the custodian (bank) for social security funds was selected. Furthermore, an agreement was signed with the Ministry of Health on medical care benefits (work injuries) despite the fact that a policy, plan, terms of reference and medical network are not approved by the SSC Board. In addition, the Draft Instructions on Medical Care Benefits of 2018 have not been endorsed yet. Accordingly, monthly subscriptions of the insured in the private sector and civil society organisations are ultimately transferred to the Public Treasury. The Minister of Labour released a statement, suggesting that social security funds could be merged with public pension funds within two years, arousing considerable controversy among Palestinians. Against this background, many questions are raised about interventions in the SSC by the Minister of Labour (Government) and compliance with the principles of governance and transparency, highlighted by the Law by Decree. The current practice indicates a clear weakness of the SSC’s Board as an institution. It requires that the Board be restructured to ensure independent, institutionalised and transparent performance.
  3. There is an absolute necessity to restructure the SSC Board in light of the deficiencies associated with the Law by Decree and practical problems that have emerged on the grounds. Addressing the SSC Board, Article 18 of the Law by Decree needs to be substantively amended to ensure transparent, effective and efficient performance and real representation of subscribers and beneficiaries of social security schemes. The SSC should not be chaired by the Minister of Labour. In principle, this approach is incompatible with the legally prescribed independent juridical personality and administrative and financial independence of the SSC from the Government. Practical experience shows that the Chairman of the SSC Board is dominating the Board with his authority as a minister (Government). Hence, the Government should be represented by five “members” on the SSC Board on an equal footing with the representatives of employees and employers (the three elements of the production process). The Chairman of the SSC Board should be selected from among the Board members by ballot after the formation of the Board. By contrast, the Minister of Labour dedicates his time and effort to ensure enforcement of the Labour Law and its regulations on the ground. He also ensures the implementation of the minimum wage policy as he chairs the National Committee on Wages, makes sure that the Committee meetings convene periodically, and reviews the minimum wages on a continuous basis. He also works towards developing a Law on Trade Union Organisation, ensuring it is fully consistent with international human rights standards and conventions.
  4. Membership on the SSC Board must be expanded. Persons with long standing integrity, competence, professionalism and independence should be involved in the Board. The membership of these persons would be confirmed by the Law by Decree and they would be selected by the Board after it is re-formed. In line with relevant international standards and best practice, women should enjoy real and effective representation on the SSC Board. Expanded membership on the SSC Board contributes positively to promoting transparency, efficiency and fair representation. The Law by Decree should provide the “conditions of membership” on the Board and should not rely on nomination of members by their respective constituency solely. This ensures that members of the next Board are competent, impartial and professional. Additionally, it should be highlighted that members are “elected” by their respective constituency. In other words, they will be elected as members of the SSC Board, ensuring that Board members truly represent the constituencies they represent. Needless to say, government representatives will be excluded from elections. However, these should fulfil membership conditions, which must be provided by the Law by Decree. The mechanism for appointing the “academic financial expert”, who is nominated by the Council of Ministers, should be modified. The SSC Board, rather than the Government, should select this expert. The mechanism for selecting the “Deputy Chair” should also be adjusted by providing that neither the Chair nor the Deputy Chair should be members of the same constituency. In addition to election, rotation should be taken into account regarding holding the position of the Deputy Chair of the Board.
  5. Women’s representation on the SSC Board suffers from a serious problem. Out of 18 members, only two women are on the Board. Furthermore, these female members are representatives of the Government. No women represent employees, employers, civil society organisations, and trade unions. In relation to women’s empowerment, this approach is in contrariety with the State of Palestine’s obligations under the Convention on the Elimination of All Forms of Discrimination against Women (CEDAW), which the State of Palestine acceded to without reservations. It is also in contravention with the Sustainable Development Goals 2030, particularly Goal 5: Achieve gender equality and empower all women and girls. This requires that represented bodies on the SSC Board pay attention to women’s representation. A legislative intervention is needed to ensure effective engagement of women. Many gender dimensions have also been spotlighted in a separate section of this study.
  6. The phased approach taking place to apply social insurance benefits, through the application of old age, natural disability and death, work injuries and maternity benefits first. Then, all other benefits provided for by the Law by Decree, including health insurance, unemployment, and family allowances, is not in conflict with international human rights conventions and standards, nor with the guidelines of the International Labour Organisation. On the other hand, social security is an inherent right of every human being and some vulnerable groups (the essence of social security) are still excluded from the comprehensive coverage of social insurance. Hence, a “comprehensive national strategy” should be developed, laying out the perceptions of the SSC Board to realise the right to social security, ensuring full enjoyment of all insurance benefits. Compiled in partnership with the civil society, the strategy should follow relevant international standards and best practices. In addition to providing relevant timeframes, this strategy should be publically available and explicate how all persons will be empowered to exercise their right to social security.
  7. There is an urgent need for a “comprehensive awareness plan” for social security, targeting the Palestinian society from across the spectrum. The plan would raise awareness on the importance of the right to social security as a national net of social protection against day-to-day risks, which persons might face. Awareness raising should highlight the vitality of social security and its paramount importance for ensuring the health, life and decent standards of living for both individuals and their families. Social security is key to income redistribution and reduction of poverty and unemployment. These and other overarching objectives, which social security serves, should be maintained. Everything related to social insurance, including relevant operations and investments, should be explained in detail to people. All questions and inquiries should also be answered in full. The outreach plan should be implemented in partnership with the civil society, ensuring a distribution of tasks and responsibilities, mechanisms and timeframes of implementation, and ongoing evaluation to achieve desired objectives.
  8. Although the Law by Decree stresses the need for compliance with the principles of governance, disclosure and transparency (Articles 2 and 11), detailed provisions under the Law by Decree are plagued with serious problems. These problems are even more serious when the said principles are not reflected in the regulations and instructions complementing the Law by Decree, which are supposed to delineate and detail the mechanisms, parameters, standards and procedures, to ensure the overall principles are effectively implemented. This will safeguard a fully governed and transparent performance as well as effective community monitoring of the SSC’s functions. This procedure is of paramount importance and constitutes a key challenge that requires legislative review and amendment because it is directly linked to the continuity and sustainability of social security. The said challenges are more serious when complementary regulations and instructions to the Law by Decree contravene legal provisions on governance, disclosure and transparency. These follow an approach based on secrecy to managing operations and investments related to social security. In relation to social insurance, regulations and instructions also derogate from the rights provided for by the Law by Decree. A case in point is the “life bonus” and other entitlements. This infringement requires substantive amendments to the current regulations and instructions complementing the Law by Decree. Other remaining regulations and instructions prescribed by the Law by Decree should be developed and discussed with the civil society as soon as practicable. These should be duly approved to ensure an inclusive social insurance and full governance and transparency of the SSC Board. In addition, a full Arabic version of the "actuarial study" should be posted on the SSC website.
  9. Under the Law by Decree, the provisions addressing the SSC Board are affected by significant problems in terms of governance, disclosure and transparency. This is particularly the case of the principle of public meetings of the SSC Board and publication of decisions made in these meetings, which have so far seemed to be confidential. This is also the case of the extremely important four permanent committees, which serve as the hub of the social security system, namely, the Auditing Committee, Investment Committee, Risk Management Committee, and Good Governance Committee. Relevant provisions under the Law by Decree limit the scope of all activities and reports of these committees to relevant departments and the Board of the SSC. Sometimes, reports are submitted to the Council of Ministers (the executive branch of government) and (inactive) Palestinian Legislative Council, including quarterly reports on investment performance and investment policies and criteria. Based on the principles of governance, disclosure and transparent performance, no legal provisions underscore the need to make publicly available all the reports prescribed by the Law by Decree.
  10. There is an absolute need to introduce substantive legal amendments to ensure governance and transparency of the vital “investment sector” in the social security system as a whole, particularly the Investment Committee and Investment Department, which are responsible for managing investment portfolios within the SSC. Investment policies and plans should be published to ensure community monitoring and compliance with relevant legislations and with the SSC investment policy approved by the SSC Board. The “percentage of money which may be invested” from funds must be set by a clear provision under the Law by Decree. Based on due diligence and best practice in investment, the money which may not be invested should also be identified, ensuring that funds continue to operate and are not at investment risks. The percentage of external investments should be identified from the total internal investments, which must provide the basis (the internal investment). A special focus should be placed on diversifying investment portfolios and ensuring a fair geographical distribution (between the West Bank and Gaza Strip) in order to promote the goals of social security, including support of national economy. Internal investments will effectively contribute to employment, fair income redistribution, creation of employment opportunities, and reduction of poverty and unemployment rates.
  11. The SSC Board should discuss and approve the “internal regulations for functions of the Investment Department” and “the regulation for managing the investments of the SCC” in partnership with the civil society. Regulations should be published immediately after they are approved by the SSC Board. Also, the “annual investment budget” should be made publically available after it is endorsed by the SSC Board. This budget should take into account cash flows into the SSC. The “annual investment policy”, “annual investment report,”, “contracts concluded with investment companies”, “quarterly reports on performance and investment activities”, and “principles and criteria for the selection of investment managers and the custodian” should also be published. Accordingly, everything related to the SSC vital investments will be subject to effective community monitoring in tandem with the principles of governance, integrity and transparent performance.
  12. A broader spectrum of the civil society calls for modifying subscription percentages (9 percent for employers vs. 7 percent for employees) as well as the calculation factor (2 percent). These are largely in favour of employers at the expense of the weaker party in labour relations, namely, employees. To achieve justice and equitability, employers should afford two thirds and employees around one third of the subscriptions. The calculation factor should be 2.5 percent and rolled out to insurance benefits. The proposed modification does not affect the actuarial study as long as the total monthly subscriptions deducted to the benefit of the insurance of old age and natural disability and death are 16 percent as provided by the Law by Decree. This is made clear by the study, which has been developed in reference of many social security or social insurance laws in other countries, including the Jordanian Social Security Law of 2014, Tunisian Social Security Law of 1960 as amended, Kuwaiti Social Insurance Law of 1976 as amended, Egyptian Social Insurance Law of 1975 as amended, Yemeni Social Insurance Law of 1991 as amended, Palestinian Social Insurance Law of 2003, appealed in 2007, and Israeli National Insurance Law of 1953 as amended.
  13. Social security experience in some comparative countries have primarily failed due to absence of the principles of governance, transparency and disclosure. Also, conflict of interests and corruption have led to serious setbacks in social security or insurance funds. As highlighted by the study, required amendments should be introduced to the Law by Decree as well as to relevant regulations and instructions. A process should be initiated to ensure governance of the SSC. Furthermore, there should be a disclosure, transparency and accountability approach related to social insurance and to the operations and investment sectors to ensure effective community monitoring of the SSC Board, Executive Management and permeant committees. In addition, the SSC Board should be restructured, taking into account gender dimensions. Lastly, fair percentages and the calculation factor should be amended, like other comparative countries and in accordance with best practices. These amendments would contribute to creating and promoting trust and confidence in the SSC performance and sustainability. Accordingly, the long overdue social protection system, which is fair, inclusive and effective, will ultimately be in place.

To read the full study in Arabic, please click here.

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