Far-reaching reforms in Oman set new benchmark for social protection in the region

The Sultan of Oman H.M. Haitham bin Tarik issued on 19 July 2023 Royal Decree No. 52/2023 promulgating the Social Protection Law. The newly approved legislation, developed with the support of the ILO, radically reshapes the social protection system in the Sultanate and marks the culmination of an ambitious reform process led by Tawazun, the high-level government programme for fiscal balance (now Estidamah).

A forthcoming report prepared in collaboration between the Social Protection Fund and the ILO outlines key aspects of the reform trajectory and highlights its main achievements, which include:

• a comprehensive and adequate social protection system that integrates contributory and non-contributory instruments to address lifecycle risks and vulnerabilities in an effective manner, leaving no-one behind;
• a sustainable model for social protection financing that integrates resources from social contributions and general revenue to ensure solidarity and fairness, and contributes substantively to poverty, vulnerability and inequality reduction;
• an integrated and cost-efficient institutional and organizational framework for social protection benefits administration and management.

This article outlines key features of the recently announced reforms.

An ambitious and holistic vision: harmonizing economic reforms with social justice

In recent years, the pension and social protection systems in Oman have faced growing challenges concerning sustainability, adequacy and effectiveness in providing needed protection to citizens and workers. Fragmented contributory schemes have caused gaps in coverage and comprehensiveness, hindered efficiency and discouraged workers mobility between economic sectors. Government-financed social protection schemes were also inadequate in extending support, particularly in the context of the gradual and ongoing removal of universal price subsidies for electricity and fuel, as well as the implementation of the new value-added tax.

The vision inspiring the comprehensive reforms was articulated by the Sultan of Oman H.M. Haitham bin Tarik on the occasion of Oman’s fiftieth National Day, where he expressed the government’s commitment to “providing the necessary protection and care for citizens, (…) to ensure that the state fulfils its basic duties, provide them with a decent life and spare them the effects that may result from some measures and financial policies.” The strong link between fiscal reforms and the investment in social protection was explicit through the intention to “direct part of the revenues of financial policies goes to the social protection system, so that it becomes a comprehensive national umbrella for the various efforts and actions of protection and social care.”

The experience of Oman shows that the necessary route to universal social protection in the Arab region is one that on the one hand restores the fiscal sustainability of public sector pension systems and at the same time unlocks new resources to broaden coverage, ensure basic income security for all, enhance protection for new emerging risks and facilitate labour market transitions. This holistic approach requires the development of an integrated social protection system, one that better complements government-financed programmes with contributory social insurance and a more streamlined social protection administration.

The remainder of the article explores 7 key features of the recently announced reforms:

1. Lifecycle-based social protection through an integrated multi-tiered approach: overview of key benefits
2. Complete restructuring of the contributory social insurance system and a new unified pension scheme
3. More comprehensive protection for workers in all forms of employment
4. A government-funded universal floor as cornerstone of the new social protection system
5. Greater opportunities for women, through a gender sensitive social protection approach
6. Definitive steps towards extending migrant workers’ rights to social protection
7. A unified legal and administrative framework for the whole social protection system

Lifecycle-based social protection through an integrated multi-tiered approach: overview of key benefits

The new social protection system that derives from the reforms on Oman is primarily structured around core lifecycle benefits as part of an integrated and multi-tiered social protection architecture.

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The multi-tiered design opened up possibilities for the establishment of integrated benefits that both guarantee basic income security for everyone for a given contingency – consistent with ILO Recommendation No. 202 of 2012 – while also ensuring higher levels of protection for people who are required and able to make contributions to social insurance through paid employment – in line with the minimum standards of ILO Convention No. 102 of 1952.

Key government-financed provisions include:
 

• Universal child benefits: All Omani children aged 0-17 will now benefit from a universal child benefit equal to OMR 10 (around USD 26) per month per child.
• Universal disability benefits: All Omanis assessed with a permanent disability that requires care or support will receive OMR 130 (around USD 340) per month.
• Universal old-age pension: All Omanis older than age 60 will receive an old-age pension equal to OMR 115 (around USD 300) per month.
• Benefit-tested survivors’ benefits: All Omani orphans younger than age of 18 and widows younger than age 60 will receive a maximum of OMR 80 (around USD 210), regardless of the deceased’s participation in the contributory system. The government-financed benefit will be reduced by the amount of any social insurance pension.
• Means-tested family income support: All Omani households - and non-Omani widows of Omani citizens - with income (including from other social protection transfers) below a defined threshold will have their income topped up to match this threshold.
• The activation of a government-funded first time-job-seekers allowance and non-contributory maternity benefits is also envisaged in the law upon future approval by the Council of Ministers. On the contributory side, the reform strengthens existing provisions and introduces new ones.

Key contributory benefit provisions include:

• Social insurance maternity benefits: All employed Omani and Non-Omani mothers of newborns, will have job-protected maternity leave for 14 weeks at full pay, financed based on a 1 per cent contribution from the employer.
• Social insurance paternity benefits: All employed Omani and non-Omani fathers of newborns, will have job-protected paternity leave for 7 days at full pay, financed from the same fund as maternity benefits.
• Social insurance cash sickness and unusual family leave benefits: All Omani and non-Omani workers will be able to take paid sick leave for up to 182 days in a year, starting at 100 per cent of pay and declining after the 21st day according to a scale. In addition, they will be entitled to take limited paid leave in cases of marriage, bereavement and family medical reasons.
• Social insurance work injury benefits: Uniform employment injury insurance for all employed workers in Oman, including non-Omanis (within three years), financed based on a 1 per cent contribution from employers.
• Social insurance employment security (unemployment) benefits: A cash benefit equivalent to 60% of the last 2-year average wage for a maximum period of 6 months for Omani workers who have involuntarily lost their employment, financed based on a 1 per cent contribution split equally between workers and employers.
• Unified social insurance old-age, disability and survivors pensions: the new law harmonizes eligibility conditions and benefit formulas for all Omani workers into a single, unified pension scheme based on more sustainable and equitable social insurance financing principles. Non-Omanis remain entitled to End-of-Service Indemnity which will be administered through a dedicated Provident Fund (within three years).

Some key provisions of the new law will be rolled out in phases during the course of the next three years.

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Complete restructuring of the contributory social insurance system and a new unified pension scheme

Prior to the reforms the contributory pension system in Oman was facing an urgent sustainability concerns due to historically generous benefits. Similar to many countries in the region, several features of the system also generated distortionary labour market incentives. Final-salary pension formulas not only drove costs up but also introduced inequities and created perverse incentives to play the system. Generous qualifying conditions for early retirement undermined labour market participation and the fragmentation across schemes with non-harmonized benefit levels discouraged labour mobility.

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The reform will transform Oman’s pension system from one based on fragmented pension funds for each category of the labour market’s formal sector, to an agile, multi-tiered pension system.

This highly complex merger, together with other crucial parametric reforms, will ensure that the system is financially sustainable while also being more equitable and supportive of a dynamic labour market.

Dr. Saif Al Mutairi, member of the Tawazun team

By equalizing pension entitlements for workers across all sectors, introducing actuarially fair reduction for early retirement, and adopting a full career average pension formula, the new pension scheme will not only be more sustainable in the short, medium and long term, but also fairer for current and future generations of workers. Transitional measures have also been included to protect the accrued rights of the insured members prior to the reforms.

The design solutions identified together with our Omani counterparts are both innovative as well as firmly oriented by the core principles expressed in ILO social security standards.

André Picard, chief of the Actuarial Services Unit of the ILO in Geneva

Sustainability is not a static concept and needs to be maintained in a robust and dynamic manner. For this reason, the new scheme incorporates automatic adjustment and risk management mechanisms that allow the system to adapt to continuously changing demographic and economic conditions on the basis of the results of successive independent actuarial valuations. The law also includes a conditional pensions indexation mechanism to preserve pensioners purchasing power. The financing model preserves the principle of solidarity and intergenerational equity, while allowing for gradual adjustments to contribution rates over time, to ensure continued affordability.

The new system will provide adequate retirement income at an affordable contribution rate, and equity between different categories of insured, hence enhancing the attractiveness of jobs in the private sector.

Iyad Hourani, member of the ILO actuarial team

More comprehensive protection for workers in all forms of employment

The reforms put particular emphasis on balancing income security in retirement with better protection of workers during their working life and on broadening participation in the contributory social insurance system to workers in all forms of employment.

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The old-age, disability and death insurance and the employment-injury insurance branches apply mandatorily to wage workers in all types of contracts – including trainees, temporary and part-time workers – as well as to the self-employed, in all economic sectors. The new sickness, maternity and paternity and unemployment insurance branches also apply mandatory to wage workers in all types of contracts and economic sectors, but exclude part time and self-employed. The law also grants voluntary participation of Omani working abroad in the old-age, disability and death and unemployment insurance branches.

Links between the unemployment benefit scheme and active labour market policies will be established in coordination between the new Social Protection Fund and the Ministry of Labour, building on the experience with the unemployment insurance system for private sector workers that was launched in 2020.

Extending to workers in all types of employment new forms of protection for unemployment, sickness, maternity and paternity through the unified national social insurance system ensures a more levelled playing field in the labour market, helps businesses better manage risks, and gets the social protection system in Oman ready for the future of work

Luca Pellerano, Senior ILO Social Protection Specialist for the Arab States

A government-funded universal floor as cornerstone of the new social protection system

Prior to the reforms, the social protection system was inadequate to protect the vulnerable. Oman’s social protection spending was low by international comparison, and spending on government-financed benefits largely insufficient due to the narrow means tested nature of most provision. Contributory pensions were the most potent poverty reduction instrument, but left many without any, or with insufficient, coverage for key lifecycle contingencies. The need for broader and stronger government-financed social protection has become particularly evident in the context of the gradual ongoing removal of universal price subsidies for electricity and fuel, and the roll-in of value added tax.

At the foundation of the new social protection architecture are government-financed universal lifecycle benefits for old age, children and disability. These core benefits will cover large numbers of households at any given time and follow all individuals throughout their lives, working seamlessly with contributory benefits in a multi-tiered system to prevent widespread poverty by providing regular and predictable income security during commonly experienced periods of vulnerability.

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Rather than a safety net, core life-cycle benefits provide a foundational “floor” upon which contributory benefits for similar contingencies can be constructed. The multi-tiered arrangements better cater for the Government multiple policy objectives, while allowing for equitable cost sharing across stakeholders in society.

Shabib Al-Busaidi, member of the Tawazun technical team

• A universal child benefit will be provided to all Omani children aged 0-17, regardless of their parents’ labour market status or income level. This is by far the simplest way to realise the right to social protection for all children. As recently documented by ILO and UNICEF, there is substantial international evidence across countries of all income levels that child benefits can have vital nutritional, health and educational benefits for children that continue to pay dividends long into the future, including for economic growth.
• The universal government-financed disability pension will ensure that everyone who is assessed as disabled will have access to a minimum level of income, regardless of his or her employment status or income. Children with disabilities will have access to the same level of benefit as adults with disabilities under the universal disability pension. In addition to the government-funded universal benefit, for those in covered employment a harmonized disability pension will be payable in cases of total or partial natural disability based on an assessment of capacity to work. The employment injury insurance scheme will also grant compensation in case of a work-related accident or disease to all workers in Oman.
• The new integrated old-age protection system will be undergirded by a foundational universal guaranteed pension for everyone above the normal retirement age of 60 financed by the state budget. A mandatory social insurance pension, with harmonized benefits for all covered persons, regardless of occupation or sector, will be paid to all labour market participants who fulfil the minimum contributory requirements.

The value of all government-financed transfers will be reviewed on the basis of a study on benefit adequacy, to be conducted periodically at regular intervals.

Oman’s decision to introduce universal child benefits and old-age pensions is truly momentous and will be a fundamental component of Oman’s new social contract going forward. Universal child benefits are a clear investment in future generations, while universal pensions are a way to ensure senior citizens live in dignity in their later years.

Shea McClanahan, policy expert on the ILO technical assistance team

 

The universal disability benefit will allow persons with disabilities and their families to meet the extra costs associated with disability and to go some way toward compensating carers for time spent outside paid employment.

Majed Al-Farsi, member of the Tawazun technical team

As a supplement to core-life cycle benefits, the new law introduces a means-tested family income support. The scheme will operate as a minimum income guarantee, with benefits equal to the difference between a target minimum income and total income of the family calculated according to the terms set out in law. The needed income support will be determined after other government and contributions financed social transfers are accounted for. The family scheme will therefore complement core-life cycle contributory and non-contributory benefits in tackling income poverty. The law and upcoming regulations set the eligibility thresholds, the components and methods for income and assets determination, and procedures for application and verification.

The technical discussions between Tawazun and ILO demonstrated unequivocally, supported with evidence from Oman and around the world, that the main drivers of impacts in successful social protection systems are core, lifecycle benefits that can prevent poverty and economic vulnerability.

Tariq Abu El Haj, economic modelling expert on the ILO technical assistance team

Greater opportunities for women, through a gender sensitive social protection approach

Many of the new provisions in Oman’s social protection law will provide stronger protections for women and pave way to greater gender equality.

• Guaranteeing a pension in old age, de-linked from previous contributions, mitigates the structural inequalities in the labour market and ensures that all women, independent of their previous family or employment status, can live out their later years in dignity.
• A guaranteed minimum survivors’ benefit for widows and orphans will ensure that the ability to maintain a minimum standard of living after the death of a spouse or parent is not reserved for those with connections to the formal labour market.
• New government-funded universal benefits for children and persons with disability will also support women, who typically bear the burden of care at home, and unlock new opportunities for their active labour participation.
• Another significant change that will create opportunities for women in Oman is the extension of maternity and paternity benefits, marking Oman out as a leader among Arab States. The new system will provide women with a longer leave, consistent with ILO minimum standards, equal to 14 weeks, with the option of unpaid, job-protected leave for up to 98 additional days during which the Social Protection Fund will cover the cost of pension contributions.
• In addition, with the new law, Oman will introduce seven days of job-protected paid paternity leave at 100 per cent of salary. Paid paternity leave policies are recognised as a tool to enable fathers to bond with their newborn while also sharing unpaid care work. The new provisions mark Oman out as a leader in the region as only three countries in the Arab States provide any paternity leave whatsoever, and in all cases such leave is employer liability and for no more than 4 days.

The universal old-age pension represents a transformative change in the orientation of the social protection system in Oman, and a remarkable step toward addressing unequal access to income security in old age between women and men.

Andre Picard, Chief of the Actuarial Services Unit at ILO Geneva

Definitive steps towards extending migrant workers’ rights to Social Protection

Before the reforms non-Omanis were legally excluded from the social insurance and social assistance systems and only protected by relatively weak employer liability provisions. The shortcomings of this approach have become increasingly evident across the region, including during the COVID-19 crisis (more here). 

Under the new law, many non-Omanis working in Oman will gain access to several fundamental social protection benefits. These changes project Oman as the most progressive country in the region to advance the agenda of extending social protection to migrant workers, building on the current reform momentum across the GCC (more here).

The new law provides for the gradual inclusion of migrant workers in national social insurance cash benefits for maternity and paternity, sickness and employment injury insurance on same terms as Omani national workers. It also establishes a national provident fund to replace the current End-of-Service Indemnities system. The new provident fund, which will be managed by the unified national social protection agency, will collect employers’ contributions and administer benefits to non-Omani workers in case of retirement, death and disability and upon return to countries of origin.

As argued in a recent ILO report on the topic, the transfer of end-of-service obligations from individual employers to a national social protection institution will not only improve enforceability of rights, but can also open new opportunities to enhance the portability of social protection benefits along migration corridors.

Options to transfer the accumulated fund and future contributions to the migrant workers’ home countries social security systems through bilateral agreements or an international system are envisaged as future development of the system.

Shabib Al-Busaidi, member of the Tawazun technical team

The new legislation in Oman is a decisive step towards the progressive realization of the right of migrant workers' right to social protection, in line with the principle of equality of treatment that is enshrined in ILO social security standards. The ILO will continue to support and follow closely on these developments, hoping they can be of inspiration to other countries across the region.

Luca Pellerano, Senior ILO Social Protection Specialist for the Arab States

A unified legal and administrative framework for the whole social protection system

One of the main achievements of the Omani reforms is the drafting and enactment of an expansive new law covering the entire social protection system, including both contributory and government-financed benefits in tandem.

Whereas in many countries, different components of the social protection system are treated in separate legal frameworks, in Oman, all benefits contemplated in the national social protection system are specified in a single law. This consolidated legal framework lowers the risk of developing contradictory provisions across different legal instruments and will facilitate internal system-wide consistency and coherence.

A royal decree covering governance and institutional matters was also approved earlier this month. It specifies the roles and responsibilities of the different actors and institutions involved in strategic management and delivery of the whole system.

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"The integration of contributory and non-contributory systems within a single legal and institutional framework opens a new era for social protection in Oman” - Luca Pellerano, Senior ILO Social Protection Specialist for the Arab States.

Whereas in many countries, different components of the social protection system are treated in separate legal frameworks, in Oman, all benefits contemplated in the national social protection system are specified in a single law. This consolidated legal framework lowers the risk of developing contradictory provisions across different legal instruments and will facilitate internal system-wide consistency and coherence.

Perhaps the single most innovative feature of Oman’s reformed social protection governance system is the establishment of the Social Protection Fund: a single, unified administrative agency to deliver all cash benefits, regardless of how they are financed. Having a single administrator for cash-based benefits delivery will maximise administrative efficiencies, by consolidating social protection information management. A Military and Security Pension Fund is also created to run a supplementary pension scheme for the uniformed personnel, and to serve as an administrative interface to with the unified social insurance scheme.

“All current and potential beneficiaries will have unique identifiers that connect them to the social security system as it accompanies them through key life course transitions” - Majed Al-Farsi, member of the Tawazun technical team.

Administering social insurance and social assistance benefits through one single national social protection agency will not only increase efficiency, but also provide a more effective mechanism to support workers and their families through their life and work transitions by reducing fragmentation across programmes and systems.

In line with ILO standards, the new governance framework in Oman establishes a tripartite board of directors of the Social Protection Fund, including representatives of workers, employers and various government ministries. 

ILO past and future engagement on the social protection reforms

The ILO has worked in close partnership with Tawazun and its constituents in Oman to support the social protection reforms agenda. This has entailed the provision of technical assistance on policy, legal, governance, actuarial and socioeconomic modelling aspects of the reforms through a team of technical experts coordinated by the Regional Office for Arab States in Beirut and the Social Protection Department in Geneva.

The ILO will continue to support the implementation of the social protection reforms as part of a new Decent Work Country Programme that is currently under preparation. This is expected to include support to the operationalization of the governance, financing and investment model of the new social protection agency, technical assistance for the design and implementation of newly established schemes in light with best international practices and social security standards, capacity building of tripartite partners on social protection administration, and the continued assessment of social protection needs and gaps.

For more information contact:

• Luca Pellerano, Senior Social Protection Specialist, ILO Regional Office for the Arab States at [email protected] 
• Andre Picard, Chief of the Actuarial Services Unit of the ILO Social Protection Department in Geneva at [email protected]
• Salwa Kanaana, Regional Communication Officer for Arab States at [email protected]