More than half of Moroccans have no pension system amid warnings of deficits by 2028

Economy of the East

Morocco's pension systems are facing a real crisis, with more than half of the labor force deprived of any retirement protection, amid alarming predictions that the financial reserves of the most important funds will be depleted in the coming years, calling for urgent intervention and radical reforms to avoid a potential social and economic catastrophe.

The official data released by the committee tasked with reforming the pension system reveals the magnitude of the challenge facing the Kingdom, with approximately 54% Moroccans of economically active age lacking any form of pension coverage. This high percentage reflects the structural imbalance in the Moroccan labor market and the unstructured nature of large sectors of the national economy.

The total economically active population in Morocco is about 11 million citizens, including 3.5 million workers in the organized private sector, in addition to 970,000 government employees and 187,000 workers in public institutions. On the other hand, about 6.3 million people work outside the framework of any pension protection system, constituting the largest segment of the Moroccan labor force that relies mainly on the informal sector.

The seriousness of the situation increases when we consider the financial crisis threatening the country's most prominent pension fund. The Moroccan Pension Fund, one of the most important funds in the system, is at risk of exhausting its financial reserves by 2028, less than five years from now. This alarming projection reflects the worsening imbalance between income and expenses in this vital fund.

Although the collective pension system is in a relatively better financial position, with reserves of 135 billion dirhams in 2021, these reserves are expected to be depleted by 2052. This relatively longer timeline does not mean that there is no risk, but rather emphasizes the need for proactive action to avoid reaching a point of no return.

For its part, the Social Security Fund, which is responsible for covering private sector workers, is expected to start recording financial deficits starting in 2038. This fund plays a pivotal role in Morocco's pension system, and any imbalance in its finances will negatively affect millions of citizens and businesses.

To address these complex challenges, the National Pension Reform Committee in 2013 made a number of strategic recommendations to save the system. The most prominent of these recommendations include gradually raising the retirement age to 65 from the current age, and increasing the contribution rate from 20% to 28% to boost the funds' financial resources.

The committee also proposed amending the mechanism for calculating pensions so that it is based on the average wages during the last eight years of employment instead of relying on the last two years only. This amendment would achieve greater fairness and contribute to improving the financial balance of the funds. However, the implementation of these recommendations faced practical and political difficulties, as they were only partially implemented, limiting their effectiveness in addressing the crisis.

The current committee tasked with reform proposes a more ambitious and comprehensive vision for the pension system, based on a radical restructuring centered on two main poles: public and private. This vision includes the establishment of a unified basic system that guarantees a minimum level of protection for all citizens, accompanied by a compulsory supplementary system based on a points system, as well as an optional supplementary system based on the principle of capitalization.

The new recommendations also call for the creation of a special fund dedicated to financing the reform process and ensuring the long-term sustainability of the system. This fund will play a pivotal role in alleviating pressure on the state budget and maintaining the competitiveness of Moroccan enterprises in local and international markets.

Economic and social experts agree that reforming Morocco's pension systems is no longer an option, but an absolute necessity imposed by several overlapping factors, including the state's high level of public debt, which limits its ability to bear additional burdens to support the ailing funds. At the forefront is the state's high level of public debt, which limits its ability to bear additional burdens to support troubled funds. Demographic developments also play an important role in complicating the scene, as Morocco is witnessing a gradual aging of its population with declining birth rates and rising median age.

These demographic shifts are leading to an ever-increasing number of retirees relative to the number of active workers, upsetting the basic balance on which pension systems are based by distribution. If not intervened quickly and decisively, this imbalance will inevitably lead to a worsening of the social and economic deficit over the next decade, with risks to social stability and national cohesion.