Savings For Retirement In Morocco: Challenges And Opportunities

Describe the Morocco’s Pension Reform Entails Different Social Policies.

Challenges for the Elder Group in Morocco’s Retirement System

Morocco is one of the economies being faced with the issue of people living at extreme poverty and thus to ensure that these people are able to gain from the growing economy has remained to be a greater challenge for the policy makers. According to Achy (2013), this kingdom has imbalances in retirement schemes which has forced the government to study alternative options. Due to the inability of the elder group to keep participating in the labor force, they mostly remain without jobs, this creates a need to plan ahead (Shah & Canaan, 2016). These elder group have many health issues and their productivity is also lower compared to the younger group. Due to these reason, many are left with no jobs as they hit the retirement age. Taking a notion that they need a stream of income to keep them going and for maintaining their daily consumption and the health costs, the government introduced a retirement benefit program where the younger people are force to save some proportion of their income for the future.

These funds are saved until one hits the retirement age and then a person is given a stream of income for the rest of his/her life unless otherwise specified. These challenges are better understood through research that may involve data collection and analysis. After the establishment of these challenges, priorities should be set, creation of awareness on the possible solution, and lastly is the measurement of progress. The traditional theory according to Shah & Canaan (2016) assumes that people make rational decisions on their spending and saving, however, this is not always the case as most tend to make decisions for their best interest.

Saving for retirement is one of the greatest asset that the elderly can have. The saving may be either mandatory or it can be self-planned. There are certain ways in which the Morocco government helps in ensuring that the employed save for their retirement. One is the pension plan; in this plan, very little is expected on the saver and is thus considered the easiest retirement plan. All the money and funds are contributed by the employer and are professionally managed (Smith, 2015). The sole role of the saver in this case is to stay for long in the job till one hits the retirement age so that one could be considered qualified for the pension. However, this is not available for everyone. According to Sss.gov (2017), for one to qualify for the retirement pension in Morocco, one has to be of age 60 and above, or 55 if have been a miner with five years underground work experience, this person must cease working.

Options for Retirement Savings in Morocco

The pension scheme in Morocco is divided into three; for civil servants, for state owned enterprises employees and for private sector workforce. The problem is that they bring inequality due to differentials in deductions. The pension plans are common for government and municipal workers but in a corporate environment they are becoming less popular (Frankel, 2014). Smith also noted that the pension plans have declined in generosity in that they fail to offer adjustments in the cost of living. This means that, after retirement you will receive a monthly income equal for all the years despite the inflation and other economic changes. This means that the retirement benefits will be subjected to a loss of purchasing power and will force the retirees to choose a lower lifestyle if they completely dependent on these savings.

Defined contribution plans is also another way of saving for retirement. Bond (2017) noted that these contribution plans are meant to supplement retirement savings. In this case, the saving is optional for the workers, they choose whether to participate or not, they choose their appropriate plan, they set their saving amount and the time when they can change the plan. The employers match certain portion of the workers contribution. The features of this plans makes them more attractive to financial advisors. The disadvantage is that tax is payable upon withdrawal since most are traditional (Lieber, 2018). However, there are exceptions to the tax on withdraws such as those meant for first home purchase. The government also offers social security programs to help the retirees such as retirement pension. This money is set aside when the government is planning its budget and is an important transfer by the government.

The government utilizes financial institutions to make it easier for saving to take place. The government’s role here is to regulate these financial institutions and ensuring that savings by workers are managed effectively. The policy tools for the government and the central bank plays an important role in the saving for retirements. Expansionary fiscal policy raises the disposable income for workers leaving them with excess income which is transferred into savings. The expansionary monetary policy of increasing money supply also has a similar impact. However, the expansionary monetary policy of decreasing interest rate has a negative impact on retirement savings. The savers need a favorable interest to induce them to save more; lower interest rate discourages savings.

Pension and mutual funds are important in that they are allowed to receive the savings by workers and give them at the retirement age with some interest growth. This is achieved by taking the saved money and reinvesting them in a different market at an interest. Some of the interest earned is the one given to the savers to compensate them for the value their saving lose over the years. The other proportion goes to the saving institution to cover for its service and other costs.

The Role of Financial Institutions and the Government

According to Smith (2015), financial institutions are important in that they offer insurance for retirement savings; these are guaranteed income annuities. For instance, the most common is their feature of allowing both workers and non-workers to save some amount of money periodically (usually monthly or quarterly). The institutions offer an environment in which the savers are flexible on their savings and they also improve effectiveness of access.

It is a public institution in Morocco that is mandated to manage the pension system. The number of members and pensioners in Morocco has expanded making CMR a leader in the Moroccan social welfare sector. Arbaoui (2013) noted that this institution needed much reforms. The Moroccan Pension Fund has legal personality and financial anatomy. The following pension plans are managed by the Fund as part of its social mission: (i) Civil pension plan. (ii) Military pension plan (Auxiliary forces and Royal Armed Forces). (iii) ATTAKMILI pension plan. (iv) Non-contributor schemes. In addition, CMR manages the following service operations on behalf of 3^rd parties: (i) Convectional withholding to benefit insurance companies, finance companies and Association of Social Works (AOS) (Finances.gov.ma, 2013). (ii) Withholding pension tax under health insurance statutory (AMO). (iii) Benefits for foundations: Hassan II foundation and Mohammed VI foundation. (iv) Benefits to the Economy and Finance Ministry.

In order to prevent the collapse of this institution, the government announced a strategy to negotiate with unions on the increment on retirement age. The CMR adopts the graded distribution principle as a mode of operation for basic plans. The retirees’ pensions and their successor pensions are funded by member’s contribution and contribution by employers. ATTAKMILI supplemental plan operates in a capitalization mode. The basic plans give out financial surpluses constituted by directly managed reserved funds; the Fund then places the reserved funds in the financial market.

The Moroccans save for their retirement through the CIMR which is a Moroccan Inter-Professional Pension Fund (Moroccoworldnews.com, 2017). As at 2016, its company members were 6276 and it had 615,934 active contributors and 164,435 beneficiaries. The CIMR had announced a strategy of advancing the benefits at the end month instead of beginning of months in order to improve quality of its services. The Moroccan government has a requirement for the private employers to reserve a certain proportion of their employees’ income as a retirement saving. This enables the government to offer pension benefits to the retirees. In addition to the mandatory saving requirement, the government allow financial institutions to take saving deposits for voluntary saving by workers. Since these funds are fixed to be saved for an agreed period of time, the financial institutions reinvest these funds at an interest. The Moroccan government has a requirement for the reserve requirement on this institutions in order to safeguard the public savings in case the institution becomes bankrupt.

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Arbaoui, L. (2013). Morocco Plans to Reform State Pension System, Benkirane Says. Retrieved from https://www.moroccoworldnews.com/2013/01/73783/morocco-plans-to-reform-state-pension-system-benkirane-says/.

Bond, T. (2017). The 401(k) Has Failed as a Replacement for Pensions. Retrieved from https://protectpensions.org/2017/01/04/401k-failed-replacement-pensions/.

Finances.gov.ma. (2013). The Moroccan Retirement Fund. Retrieved from https://www.finances.gov.ma/en/Pages/CMR.aspx?m=THE%20MINISTRY&m2=Departments.

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