Ethiopia: Safeguarding Retirement Rights – Reducing Dependence, Ensuring Financial Security

LEULSEGED WORKU — Securing the future of private employees through an effective pension system has a crucial role not only for an individual retiree but also for the nation as a whole for it helps alleviate future economic burdens on governments’ budgets. For several decades in Ethiopia, it was only government employees who had access to such an opportunity.

However, with the establishment of the Private Organizations Employees Social Security Administration (POESSA), private employees are now benefiting from this crucial system.

Using this as a ground, The Ethiopian Herald had a chance to interview POESSA’s CEO, Abate Mitiku to discuss the organization’s role and achievements, in this regard.

According to Abate, ensuring the social security of private organizations employees is a key step toward modernization and it is one way of rewarding senior citizens for their decades of service to their country. The idea of a social security system is not something new in Ethiopia. In the earlier times, it was common to reward patriots or soldiers who returned home from warfronts with injuries or any other reasons. Whenever patriots returned home from battles, they used to receive a reward in the form of land from the king or any other government authorities. In modern times, the concept of a social security system has become practical, mainly to ensure the rights of employees.

According to the CEO, POESSA was first introduced in Ethiopia in 2011 and became operational the following year, bringing pension benefits to private-sector workers.

POESSA works aggressively in collaboration with different stakeholders, including banks and other sectors to create awareness as well as to ensure sustainable collection of retirement funds from private firms or organizations. Using various district offices and branches that are found all over the country, POESSA is working untiringly to ensure all private-sector employees are benefiting from the system.

Despite the fact that the organization is relatively young (established just thirteen years ago), it has made significant strides in ensuring the financial security of private-sector retirees and even contributes its share in the economic affairs of the nation. However, that does not mean that all the paths have been without challenges. Some private organizations were hesitant to join the pension system and they even went on criticizing the proclamation which protects the interests of employees. This resistance is always due to lack of awareness or some private organizations are more focused on the profits they earn at the expense of employees’ futures. Abate said that social security in the form of pension is a right for every Ethiopian. The pension a person will get after he/she gets retired is not a handout from the government or any other agency, it is a right earned for the services they provide for decades.

The experiences of developed countries, including some African countries show that individuals who once had been serving in private firms and retired because of their age are respected members of society and they are rewarded in the form of pension or other social security services.

Regarding the challenges in areas of pension for private employees, Abate said that there is still misunderstanding among private employers about employees’ pensions. This awareness gap is sometimes deliberate, and in some cases it arises from lack of knowledge. The first type of private firms, deliberately avoid the 11 percent pension contribution, which is covered by the firm, driven by greed and seeking to maximize their own profit at the expense of their workers.

However, the truth is, whenever a given private firm provides social security service to its employees in the form of pension, it is not only supporting an individual worker but also contributes to the national economy. What is more, whenever private firm employees have pension guarantees, they will develop a sense of loyalty and belongingness to that particular company and work hard to maximize production and productivity; this will in turn support the economy of the whole nation.

According to Abate, POESSA is founded with an objective of ensuring pension benefits for private firm workers who would be retired at the age of 60 and serving that firm for a fixed period of time or, those who retire early because of health related challenge before 60 years old. The organization also has objectives to protect and enhance the pensioners’ benefits through adjustments.

“Every individual is not expected to turn sixty years old to get the pension. If they are exposed to injuries or other damage while discharging responsibilities at workplace and their health condition is approved by medical board, they will get the pension.”

A pension is determined taking three variables into consideration- the amount of salary the person earns, service year and the average of the last three years. Depending on these factors, a person may retire and receive a pension before turning 60, he added.

Regarding the achievements of the Organization, Abate said that, due to the awareness raising efforts POESSA and its stakeholders conducted, there is a dramatic increase in the amount of money collected for pension. For instance, in the previous years, the annual amount of money collected from different private organizations was only six billion birr. However, this amount has increased into 28 billion birr for the last Ethiopian budget year. And for this budget year, there is a plan to collect 40 billion. So far, an encouraging result is witnessed. For this and other reasons, the organization is found in a good shape, Abate remarked.

“POESSA is now a double edged sword. On one hand, it protects the interests of the future senior citizens by ensuring their pensions. On other dimension, it uses the collected money to finance the economy in the form of buying government bonds and treasury bills. This has a significant role to stimulate the national market. What is more, as a financial institution, POESSA will invest its capital which has a direct economic impact on the economy of the nation.”

Regarding who the legal person is to get pension in private organizations, Abate said, every individual who legally serve in a licensed private firm has the right to benefit from the service. Regarding how the pension is contributed by the firm and an individual working to that particular firm, Abate said that every private firm will contribute 11 percent while an individual employee contributes seven percent of their salary to their future pension.