Social security sustainability: Where is the real battle?

The proposed amendments to Jordan’s Social Security Law have sparked extensive debate between supporters, who view them as necessary to safeguard the long-term sustainability of the Social Security Corporation, and opponents, who fear they may come at the expense of contributors and retirees. Yet amid this debate, a more fundamental question is often overlooked: How can we ensure that the social security system remains capable of fulfilling its obligations not only today, but also twenty, thirty, and forty years from now?

This question is not unique to Jordan. It confronts most countries around the world. Across Europe, Japan, Canada, and the United States, pension systems are facing increasing pressure as a result of population aging, rising life expectancy, and declining birth rates. People today live much longer than was anticipated when most pension systems were originally designed decades ago, while the number of new entrants into the labor market is growing more slowly than the number of retirees.

As a result, most advanced economies have spent the past several decades increasing retirement ages, tightening early retirement provisions, and extending the number of contribution years required to qualify for a pension. The objective of these reforms has not been to reduce citizens’ rights, but rather to preserve the long-term viability of pension systems.

Jordan’s situation, however, differs somewhat from that of advanced economies. While population aging represents the principal challenge in Europe and Japan, Jordan’s most pressing challenge remains low labor force participation, high unemployment, limited female participation in the workforce, and the persistence of a large informal economy.

To understand the nature of the challenge, it is important to distinguish between two key concepts in pension finance: the two break-even points and the core financial position.

The first break-even point occurs when contribution revenues equal pension benefit payments. Beyond this stage, the institution begins relying on investment returns to cover the gap between revenues and expenditures. The second break-even point occurs when contribution revenues plus investment income equal pension obligations. Beyond this stage, the fund begins drawing down its accumulated reserves.

The most important indicator, however, is the core financial position, defined as the difference between contribution revenues and pension expenditures. When pension payments exceed contributions, the core financial position becomes negative, even if the institution continues to generate substantial investment profits. For this reason, actuaries regard the core financial position as the most meaningful measure of a pension system’s long-term health.

Jordan’s Social Security Corporation currently enjoys substantial assets and investments that constitute one of the pillars of economic and financial stability in the Kingdom. Nevertheless, actuarial studies indicate that current trends will gradually weaken the core financial position and increase pressure on the system due to early retirement, rising life expectancy, and growing numbers of retirees.

This is the context behind the government’s proposed amendments to the Social Security Law. The most significant proposals include gradually increasing the retirement age for men from 60 to 65 years and for women from 55 to 60 years, with implementation phased in over an extended period. The amendments also seek to increase the minimum contribution period required to qualify for an old-age pension from 180 contributions to 240 contributions, effectively raising the minimum qualifying period from 15 years to 20 years.

The proposals also include reforms to early retirement, one of the largest sources of long-term financial pressure on the system. These reforms involve increasing the number of contributions required for early retirement, extending the required years of service, and strengthening the actuarial reductions applied to those who leave the labor force before reaching the statutory retirement age.

In addition, the amendments propose revising the pension calculation formula by relying on average earnings over a longer period prior to retirement rather than focusing primarily on the final years of employment. This aims to limit practices whereby wages are artificially increased shortly before retirement in order to secure pension benefits that exceed what lifetime contributions would justify. The proposals also seek to expand social security coverage to groups that remain outside the system and to create more flexible arrangements for workers in emerging forms of employment.

From an actuarial perspective, the overall direction of these reforms is both justified and appropriate. Increasing retirement ages reflects improvements in life expectancy, tightening early retirement provisions addresses one of the main sources of future financial imbalance, and revising pension calculations enhances both fairness and sustainability.

Yet the problem is that much of the public debate has focused almost exclusively on reducing expenditures and delaying retirement, while insufficient attention has been paid to the revenue side of the equation, despite the fact that it may prove to be the most important determinant of Jordan’s social security sustainability in the decades ahead.

The reality is that social security systems do not thrive primarily by reducing benefits; they thrive by increasing the number of contributors. Every new worker entering formal employment generates additional revenues for the institution today and strengthens its sustainability tomorrow.

This brings us to the most important issue in Jordan’s case. While European countries worry about rising numbers of elderly citizens, Jordan should be more concerned about declining numbers of workers. The greatest threat to the sustainability of Jordan’s social security system over the next two decades is not population aging but low labor force participation.

Population aging increases the number of beneficiaries. Low labor force participation reduces the number of contributors. If each retiree is supported by three or four active contributors, the system remains stable. However, when the number of workers and contributors declines, financial pressures emerge even in a society that remains demographically young.

A pension system financed by one million workers will always be more sustainable than one financed by half a million workers, even if the number of retirees is identical. Consequently, the real battle for social security sustainability begins not with retirement policy but with labor market policy.

For this reason, any comprehensive reform strategy must include a package of revenue-enhancing measures that are just as important as expenditure reforms.

First, labor force participation must be increased. Every additional percentage point of participation translates into thousands of new contributors and millions of dinars in additional annual contributions.

Second, female labor force participation must be strengthened. Bringing women’s participation rates closer to international norms would add tens of thousands of contributors to the social security system and generate sustainable revenues for decades to come.

Third, youth employment must become a national economic priority. Every young person who enters formal employment today becomes a contributor to the pension system for potentially forty years.

Fourth, the informal economy must be integrated into the social security framework. Large numbers of self-employed workers, small-business operators, and digital-economy participants remain outside the formal system, depriving both themselves and the social security system of long-term protection and resources.

Fifth, part of the country’s investment and tax incentive framework should be linked directly to the creation of formal jobs covered by social security, making formal employment a central objective of economic and investment policy.

Sixth, more flexible contribution schemes should be developed for self-employed workers, digital platform workers, and Jordanians working abroad to broaden the contributor base and increase revenues.

Seventh, incentives for small and medium-sized enterprises should encourage the transition from informal to formal economic activity. Every business that enters the formal economy creates new contributors and additional revenues for the social security system.

Improving productivity is also an essential part of the solution. As Jordanian workers become more productive and real wages increase, social security contributions rise, and the core financial position improves. Consequently, policies related to investment, education, training, and technology are not separate from the future of social security; they are fundamental to its sustainability.

International experience clearly demonstrates that the most sustainable pension systems are not necessarily those that rely solely on raising retirement ages or reducing benefits. Rather, they are those that successfully expand their contributor base, improve productivity, and sustain economic growth. True reform occurs when we create opportunities for more people to work in the first place. Ultimately, the future of Jordan’s social security system will be determined less by the number of retirees than by the number of workers.

*The writer is a former Jordanian Minister of State for Economic Affairs.

Published in Jordan Times/ 15 June, 2026

https://jordantimes.com/opinion/yusuf-mansur/social-security-sustainability-where-is-the-real-battle