Policy Paper: Towards a Fair and Sustainable Social Security Model in Jordan

Performance Index Center – KAFA’A has launched a new policy paper titled “Towards a Fair and Sustainable Social Security Model in Jordan”. This paper is part of the Center’s ongoing efforts to provide analytical and reformist insights into public policies. The paper aims to present innovative alternatives that ensure the long-term viability and financial sustainability of the Jordanian pension system for future generations. It advocates for a shift away from traditional coercive measures, such as raising the mandatory retirement age, by restructuring incentives and guiding institutional and individual behavior toward continued productivity.
The paper provides an in-depth analysis of the current Social Security Law No. (1) of 2014, highlighting loopholes in the existing pension calculation formula, which relies on the average salary of the final years. This formula often creates pressures that drive subscribers toward “early retirement.” Furthermore, the paper features an “Impact Matrix” comparing the current status quo with the proposed model to achieve the desired balance between subscribers’ rights and the sustainability of the funds.

Key Findings and Proposals:

• Addressing Structural Distortions: The paper reveals that the current pension formula has caused behavioral distortions; it incentivizes artificial salary inflation during the final years of service (legal manipulation) and drives subscribers toward early retirement to escape high contribution costs that burden both establishments and employees in their later career stages.
• Pension Formula Governance: The paper proposes adopting a formula based on the “lifetime career average” indexed to inflation. This ensures that retirees receive a pension reflecting the true purchasing power of their contributions over the years, effectively ending artificial salary hikes and achieving absolute fairness.
• The “Declining Contribution System”: A recommendation to introduce a mechanism that gradually reduces contribution rates once an employee meets early retirement eligibility requirements. This reduces costs for employers and incentivizes skilled talent to remain in the workforce voluntarily, transforming early retirement from a “forced choice” into “productive continuity.”
• Enhancing Financial Sustainability: The proposed model contributes to protecting the financial position of the Social Security Corporation by delaying the outflow of cash (pension benefits) and increasing the actual retirement age through flexible and incentivized methods rather than legal mandates.
• National and Actuarial Dialogue: The paper emphasizes the importance of opening transparent national dialogue channels involving the government, employers, and employees. It stresses that these reforms must be supported by accurate actuarial studies to ensure precise implementation and legislative stability.

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