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53574The World Bank

CONCEPT NOTE

FOR

PENSION REFORM IMPLEMENTATION SUPPORT TECHNICAL ASSISTANCE: IMPROVING OLD-AGE INCOME SECURITY IN IRAQ

(P114647)

November 16, 2009

Vice PresidentCountry DirectorSector DirectorSector Manager

Task Team Leader

Shamshad AkhtarHedi Larbi

Steen JorgensenRoberta Gatti

Ghassan Alkhoja

MIDDLE EAST AND NORTH AFRICA REGIONHUMAN DEVELOPMENT DEPARTMENT (MNSHD)

LIST OF ABBREVIATIONS

DB Defined BenefitDC Defined ContributionESPP Emergency Social Protection ProjectGDP Gross Domestic ProductGOI Government of IraqIMF International Monetary FundISN Interim Strategy NoteISRB Iraq Strategic Review BoardITF Iraq Trust FundMENA Middle East and North Africa regionMOF Ministry of FinanceMOLSA Ministry of Labor and Social AffairsNBP National Board of PensionsPRISTA Pension Reform Implementation Support Technical AssistancePRMO Pension Reform Management OfficePROST Pension Reform Options Simulations ToolkitSOE State-Owned EnterprisesSPF State Pension FundSPS State Pension SystemSSS Social Security SystemUSAID United States Agency for International Development

Republic of IraqPension Reform Implementation Support Technical Assistance

TABLE OF CONTENTS

I. BACKGROUND AND RATIONALE........................................................................................1II. KEY DEVELOPMENT OBJECTIVES.....................................................................................4III. THE TECHNICAL ASSISTANCE PROGRAM AND SUMMARY COSTS...................................6IV. CRITICAL RISKS..................................................................................................................9V. IMPLEMENTATION ARRANGEMENTS...............................................................................10

ANNEX I : SUMMARY OF LAW 27/2006 AS AMENDED IN 2007 (NEW PENSION LAW)..........13ANNEX II: KEY TERMS OF REFERENCE.................................................................................16ANNEX III: DETAILED COSTING...............................................................................................21ANNEX IV: IMPLEMENTATION SCHEDULE..............................................................................24ANNEX V: MOF AND ISRB APPROVALS...............................................................................26


Project Name Pension Reform Implementation Support Technical Assistance (P114647)

Region Middle East and North AfricaCountry Republic of IraqSector Social ProtectionImplementing Agency The World BankConcept Note Preparation Date September 11, 2009Concept Note Review Date September 24, 2009Regional Vice President Approval November 20, 2009Expected Closing Date April 30, 2013Source of Funding Iraq Trust FundTechnical Assistance Amount US$5.8 million

I. BACKGROUND AND RATIONALE

1. The Pension Reform Implementation Reform Technical Assistance (PRISTA) responds to the Government of Iraq’s (GOI) request for assistance to support implementation of the new Pension Law. Efforts to reform Iraq’s pension system started soon after April 2003. This culminated in the passing of Law 27/2006 in January 2006. Implementation of Law 27/2006 was suspended as it was widely deemed to be unsustainable and did not benefit from significant international experience. Subsequently, GOI amended the law in December 2007 (referred to as the Unified Pension Law in the text of the Law), with support from the World Bank, the IMF, and USAID, to improve financial sustainability and alter the design of public sector pensions in line with good international practices. The amendments to Law 27/2006 also mandated the unification of the currently distinct public and private sector pension schemes. While the Pensions Law presents a significant improvement, there remain substantial challenges in terms of GOI’s capacity to implement the law, and in ensuring a sustainable old-age income protection mechanism for Iraq. GOI subsequently requested World Bank support for the implementation of the new law. For the remainder of this Concept Note, Law 27/2006 as amended in December 2007 will be referred to as the “new Pension Law”.

2. The multi-year technical assistance (TA) is part of the Bank’s assistance strategy under the third Interim Strategy Note (FY09-FY11) for Iraq. The technical assistance falls under Themes 1 and 2 of the ISN: “Continuing to support ongoing reconstruction and socio-economic recovery efforts” and “Improving the management of public resources, including human, natural, and financial” respectively. The technical assistance also incorporates key features that illustrate the proposed approaches in the ISN to institution building (see Section IV). This activity is also complimentary to the existing Emergency Social Protection Project, financed by the Iraq Trust Fund (ITF), and the proposed Social Safety Net Implementation Support Technical Assistance. In addition, the TA will benefit from development expected to take place from the World Bank-financed Public Financial Management and Banking Sector Reform projects.

3. The macroeconomic and fiscal standing of Iraq calls for new approaches in leveraging donor resources, stressing the focus on technical assistance and knowledge transfer to assist the Government of Iraq to better utilize their own resources. The main binding constraints facing economic development in Iraq lay with the security situation, the slow political reconciliation and the capacity to utilize the country’s resources effectively. In view of these constraints, the next phase of donor assistance will focus on technical assistance and knowledge sharing that support the GOI to build capacities that are capable of effectively utilizing Iraq’s own resources, including provision of budget

support accompanied by robust technical assistance to support implementation of reforms. An appropriate project financing arrangement at this stage is one in which donor resources are focusing on technical assistance and knowledge transfer coupled with financial commitments from the GOI to invest in the physical infrastructure associated with the reform areas of the knowledge transfer to spur growth in the economy. Changes in the security situation and the progress with political reconciliation is outside of the scope of this technical assistance program, but recent improvements in these fields also improved the development impact potential of the technical assistance program in the area of pensions.

4. The area of assistance in improving old-age income security in Iraq presents a case for a cost-sharing financial arrangement: donor resources to be spent on technical assistance and knowledge transfer while the investment in systems and infrastructure are to be financed by the GOI. The described financial arrangement in the new stage of development assistance to Iraq is appropriate in the context of improving the system of old-age income security. There are a lot of knowledge areas related to pension reform where the GOI needs technical assistance, including the knowledge base on how to improve the physical and IT infrastructure, but the actual investment in the information technology network and the improvement of the national and regional office network of the NBP are to be financed by the GOI. Throughout the discussions during the preparation of the technical assistance, MOF has continually signaled its commitment to provide the needed resources for these “hard” investments.

5. The GOI formally requested World Bank-executed technical assistance in the area of pension reform implementation: the main directions of such support have been mutually agreed with the client counterparts through a workshop focused on implementation issues held in January, 2008 in Amman, Jordan. The workshop addressed completely new aspects of pension administration needs in Iraq such as contribution collection and individual account based pension record keeping through the involvement of international experts and USAID. During the workshop the participants developed a high level implementation action plan, which was subsequently refined during missions in 2008 and 2009 resulting in the current approach. This action plan provides the framework for the technical assistance program to be initiated under this Concept Note.

6. The needs of the implementation for the new Pension Law, the withdrawal of USAID, the improving security situation and the recently improved performance of the Emergency Social Protection Project (ESPP) suggest the expansion of the World Bank work program in Iraq in the pension area. World Bank presence in Iraq has been limited and the World Bank social protection missions to work with the Iraqi counterpart have been taking place outside of Iraq, typically in Amman, Jordan, where the World Bank’s office supporting operations in Iraq is located. These constraints in the past have been alleviated via strong donor contribution, in particular, the cooperation with USAID given the extensive USAID operations on the ground. USAID informed the World Bank that its operations supporting the GOI in pensions were discontinued in April 2009. Continuity in the client support could only be maintained if the World Bank extended its technical assistance program parallel with the withdrawal of USAID. The constraints towards World Bank activities remain to be present, but the improving security situation and the accelerated use of ESPP resources suggest that the World Bank operations could be extended with improved development impact potential, along the implementation arrangements suggested in Section V of the Concept Note. The World Bank’s leadership in the technical aspects of the support in pensions has been established, no single other donor organization is in the position to address the challenges the GOI faces in this policy area.

Features of the Pension System in Iraq

7. The system of old-age income security in Iraq faces massive challenges: the pension reform legislation of the existing public sector pension scheme, the new Pension Law became effective in December 2007, without prior consideration for implementation arrangements. The main short-term Republic of IraqPension Reform Implementation Support Technical Assistance

challenges of the Iraqi pension system originate from the need to implement the amendment of Law 27/2006. A comprehensive amendment modernizing the public sector pension system, previously known as the State Pension System (SPS), was approved by the Iraqi legislature in October 2007 and enacted in December 2007. However, the new provisions of the Law affect every public sector employees retiring on or after January 17, 2006. The comprehensive amendment became effective without consideration for the administrative needs of implementation. A summary of Law 27/2006 as amended is shown in Annex I.

8. The recent pension reform legislation requires the merger of the public and private sector pension schemes by 2010; a difficult task to accomplish in such a short time span, since the intent of legislation is to alleviate the existing labor market segmentation. The amendment to Law 27/2006 includes a provision on the merger of the public and private sector pension schemes by January 1, 2010. In particular, the National Board of Pensions (NBP) has been established as the unifying body of the mandatory pension schemes. The NBP absorbs the Pension Directorate of the Ministry of Finance (MOF), which used to administer the SPS. Those retired prior to January 17, 2006 will see little effect due to the reform. However, a new State Pension Fund (SPF) has been established to provide pension benefits to public sector workers retiring on or after January 17, 2008. The SPF is an administrative unit within the unifying umbrella of the NBP. Furthermore, the existing Social Security System (SSS), the private sector pension scheme is to be transferred under the authority of the NBP. The envisioned merger is desirable as much as it alleviates the segmentation of the labor market along the public/private divide, but the feasibility of the implementation within the legislated deadline poses a substantial challenge.

9. Even if all the implementation issues of the new Pension Law are resolved, the mandatory pension system in Iraq will cover only roughly one fourth of the labor force representing a low level from a social protection point of view, and is 10 percentage points below the already low average coverage rate in the Middle East and North Africa region. The coverage level of the national pension systems in MENA is below that of the one in Iraq only in two countries: Yemen and the West Bank and Gaza. The coverage rate reflects upon the capability of the pension system to prevent old-age poverty. A low coverage rate does not only reflect limited overall access to the pension system, but it also signals that only the already advantaged social groups have access to this social protection instrument. The primary beneficiary group of the pension system is public sector employees who already possess a solid and secure source of income compared to the uncovered masses in the informal sector. Both the goals of poverty alleviation and accelerating private sector led economic growth would point into the direction of extending social insurance coverage on the medium- to long-term. Addressing the implementation challenges of the new Pension Law is only an intermediate step in this long-term context.

Rationale for World Bank Involvement

10. The World Bank has been involved in pension policy development in Iraq since the early stages of the Iraqi reconstruction efforts and it identified the massive risks that the implementation of Law 27/2006 would have imposed if it were implemented in its initial form. Reinstating the functionality of the pension system in Iraq was a first order priority of the reconstruction efforts. The Government of Iraq adopted Law 27/2006, which redesigned the provisions of pensions in the public sector. Unfortunately, the adopted design was not in line with the basic generally accepted design features of “good” defined benefit (DB) pension schemes. Pension payments in 2005 amounted to 5.6 percent of the GDP, representing the largest social protection program by far, and the new design quickly would have further deteriorated the financial sustainability of the scheme. If Law 27/2006 had been implemented in its initial form it would have required government subsidies equivalent to 60 percent of the GDP for the period 2007-2020. Beyond the considerations of affordability and financial sustainability the system imposed disincentives towards work effort and the nontransparent mechanism also suffered from undesirable equity issues. The World Bank policy note “Pensions in Iraq: Improving Financial Sustainability, Efficiency and Equity in the Iraqi Pension System: A Concept for Reform” contributed to


the agreement between the GOI on one side and the donor community (IMF, USAID and World Bank) on the other side to suspend the implementation of Law 27/2006 until a significant amendment improving the design takes place.

11. The World Bank has also been involved in the administrative capacity building efforts in the field of pensions through the Emergency Social Protection Project (ESPP). ESPP was initiated to reinstate and then to improve the capacities of the MOF and the Ministry of Labor and Social Affairs (MOLSA) to carry out crucial administrative and policy roles in social protection, in particular, in the areas of pensions and social safety nets. The pension component of ESPP has contributed to building capacities through training and the provision of IT equipment starting in 2006. In addition, the ESPP includes a work program component, which is designed to improve the reliability of pension policy decisions through making the necessary data available for actuarial projections. In particular, a beneficiary and a contributor survey is underway as part of the ESPP activities.

II. KEY DEVELOPMENT OBJECTIVES

12. The objective of this TA is: (i) In the short-term, to support GOI in implementing the provisions of the new Pensions Law; (ii) in the medium-term, to support the unification of the public and private pension schemes; and (iii) in the long-term, to support the development of long-term old-age income strategy for Iraq. As described earlier in the Concept Note, GOI faces substantial challenges in implementation of the new Pensions Law and thus the immediate objectives of the technical assistance is to support its implementation. However, to contribute to long-term sustainability, and as described further below, the technical assistance also has medium-term objectives to support unification of the public and private pensions systems; and long-term objectives to support the GOI to develop a long-term old-age income security strategy for Iraq with a focus on the expansion of social insurance coverage.

13. “Good” examples of pension provision and pension system design show features of desirable equity outcomes, adequate benefits without imposing massive economic distortions; they are also affordable, financially sustainable, and administratively efficient and provide access to a large share of the population. A “good” pension system is expected to offer adequate benefits, i.e., at a minimum the income replacement level of the pension scheme should robustly protect from old-age poverty. At the same time, the benefits should be moderated by the principle of affordability, i.e., the pension system should not impose a burden on economy so that it constraints economic growth. The rules of the pension system should be consistent with economic efficiency, i.e., it should not discourage work effort and it should not distort labor supply decisions significantly. Pension systems typically redistribute income across plan members. This redistribution is necessary to offer a minimum standard of living for all compliant pension plan members, but the redistribution should be transparent and progressive. Furthermore, the pension system should be financially self-sufficient on the long-run; it should comply with the principle of financial sustainability. Finally, in countries with developed financial infrastructure individuals should have options to diversify savings for old-age within and outside the mandatory pension system.

14. A “good” pension system, or a social insurance system in a broader sense, does not only offer social protection benefits, but it is also a precondition for a desirable private sector led economic development path. At higher levels of economic developments individual welfare is increasingly more reliant on the employment relationship with an employer organization, the role of the family as an informal safety net becomes less important. The exposure to certain shocks such as loss of productivity and income generating capacity due to old-age, disability, death, work injury or unemployment can be effectively protected against by large scale mandatory savings and risk-pooling mechanisms. These protection mechanisms ensure the development of the human capital of the labor


force, a key production factor, and they also contribute to the efficiency in the distribution of the gains achieved through economic activities. Alternatively, “bad” pension and social insurance systems constrain economic development. Such examples of pension systems segregate the labor force across the boundaries of the various pension schemes, create disincentives towards work, increase labor costs beyond reason, impose massive burden on economic activities and government budgets, and ultimately fail to provide protection to a large, often most vulnerable, part of the population.

15. The amendment to Law 27/2006 in 2007, compared to the original Law 27, represents a significant improvement in terms of financial sustainability and certain defined benefit pension design features; however, the Iraqi pension system will still need significant improvements to live up to the general principles described above even after the implementation of the now applicable legislation. Both the public and the private sector pension schemes in Iraq are so called defined benefit pension schemes, i.e. the primary determinants of the pension benefits are the length of contribution/service, some measure of the individual’s wage and a policy parameter setting the generosity of the scheme, the so called accrual rate. The financial sustainability of such scheme can be maintained if the contribution rate assessed on wages (i.e. the determinant of revenues) and the dual set of the generosity parameter (the accrual rate) and life expectancy patterns (i.e. the determinants of expenditures) are derived simultaneously in a forward-looking manner. Other parameters of the defined benefit system, such as the minimum pension guarantee, the indexation rules, the ceiling on covered wages, etc. also affect the financial sustainability. While the amendment to Law 27 in 2007 brought about changes that improve financial sustainability, the lack of reliable data about the demographic, contribution and retirement patterns of the covered population made it impossible to carry out robust actuarial projections in 2007. Once more reliable data becomes available a comprehensive review of the legislation should be carried out, at the earliest after the completion of the contributor and beneficiary surveys carried out under the ESPP. Not only the design in the 2007 amendment of Law 27 may need adjustments from a sustainability perspective, but there is also room for improvement in the overall defined benefit design, in particular, the benefit formula, the provisions of disability and survivor pensions may benefit from a revision.

16. Despite the shortcomings of pension system design in the new Pension Law, the short-term activities of the technical assistance program will focus on supporting the implementation of this legislation and on the associated capacity building. The uncertainty caused by incomplete implementation may undermine public belief in the pension system. Developing a pension administration system, which can reliably determine the pension benefits of new pensioners, is a first order priority. The data recording needs of the new pension benefit formula also must be accommodated without further delay. This is a demanding task as the new legislation makes the pension benefit conditional on an average wage measure that gradually extends the number of years in the wage history considered in the average wage measure. The reserves the SPF is expected to accumulate during the early maturation of the scheme should be protected by prudent investment management policies and investment management practices. Ultimately, the pension administration requirements of the new Pension Law are systems that will accommodate further improvements in the pension system design. It is clear that any future innovation in the pension system will have to rely on currently nonexistent contribution collection and individual record keeping systems as well. As the implementation process is primarily constrained by the existing institutional capacities, the implementation support will be focused on identifying and unlocking the dormant capacities within the NBP, and in building the needed institutional capacity to sustain operations. As such, the technical assistance will front-load much of the capacity building efforts of the NBP, to allow for more robust interactions and implementation for the latter parts of the technical assistance. In addition, all activities envisaged under the technical assistance will incorporate training and knowledge transfer.


Medium- and Long-Term Objectives

17. The medium-term objectives of the technical assistance program will first focus on supporting the unification of the rules of the private and public sector pension schemes, and then implementing the associated administrative merger. The new Pension Law requires that the assets, liabilities and administrative resources of the Social Security System are transferred to the NBP by 2010. The provision in the Law is not clear in terms of how this transfer should take place. This is a desirable objective, but it also assumes that the unification in the contribution requirements and in the pension benefits also takes place. Given the current administrative capacities to address other dire challenges of the implementation of the new Pension Law, the merger by the legislated deadline does not seem feasible. The merger is further complicated by the fact that the SSS is not only a pension scheme, but other social insurance components (e.g. health insurance) are offered as a part of the SSS package. These components are not offered to public sector workers under the coverage of the SPF. In essence, the medium-term objectives of the technical assistance program will focus on assisting the GOI to develop a policy framework for the unification of the public and private sector social insurance packages, complete the associated legislative process and then assist the administrative merger of the currently distinct implementation capacities.

18. The longer-term objectives of the technical assistance program should help the GOI to develop a long-term old-age income security strategy for Iraq with a focus on the expansion of social insurance coverage. A sole focus on the implementation of the new Pension Law would fall short of establishing a pension system that provides protection against old-age poverty to a large proportion of the Iraqi society. The new Pension Law focuses on the existing formal sector pension schemes (including the SSS scheme via the merger provision), but offers no coverage to approximately three fourths of the labor force. The incremental improvements in the pension system should be integrated in the context of a long-term national old-age income protection strategy. This strategy should consider techniques that would improve the coverage rate of the mandatory pension (social insurance) system. Such techniques should consider those social groups who face the consequences of exclusion imposed by the regulatory boundaries of the formal employment sector, but it also should create incentives that could attract those who currently stay outside of the pension system voluntarily. The biggest challenge is to include the most vulnerable and poor under the protective coverage of a contributory social insurance mechanism. One avenue to improve coverage among poor informal sector workers is to provide full or partial targeted subsidies (matching contributions) to disadvantaged social groups. Such subsidies should be harmonized with the general social safety net and its targeting mechanism.

19. Finally, the long-term national old-age income protection strategy should take into account the expected development path of Iraq and envision how the sources of old-age income could be diversified in the future within and outside of the mandatory pension scheme. International experience suggests that the robustness of old-age income protection could be improved if the sources of old-age income are diversified. A diverse set of mandatory and/or voluntary, defined benefit and/or defined contribution, pay-as-you-go and/or funded pension institutions (pillars) can improve the robustness of the pension system against economic, demographic, labor market or financial system shocks. Of course, increasing the degree of diversification in the sources of old-age income is a gradual long-term process and is contingent upon the development level of the country.

III. THE TECHNICAL ASSISTANCE PROGRAM AND SUMMARY COSTS

20. The technical assistance will be organized along five main components, and prioritized to ensure immediate support to the short-term implementation requirements of the new Pension Law and building the institutional capacity of the NBP. The total technical assistance amount is US$5.8 million to be financed from the ITF, for a duration of three and a half years. The components of the


technical assistance have been discussed and agreed upon during the January 2008 Pensions Workshop, and during subsequent missions in April 2008, November 2008, March 2009, and June 2009 (key terms of reference are shown in Annex II). The components and sub-components are shown below (Actual modality for implementation (i.e., workshops, consulting services, etc.) are detailed in Section V and in Annexes III and IV:

Component Sub-Components Expected Outputs

Component 1

Develop Capacity to Implement the new Pension Law

The NBP will have built up its capacity to implement the provisions of the new Pension Law

Build the institutional capacity of the NBP to implement the provisions of the new Pension law;

Support the development and implementation of a human resource development plan for the NBP;

Support the development of a system for contribution management for the SPF;

Support the design of a pension administration information system and provide technical assistance for systems acquisition;

Support the development of prudent investment policies and management procedures for the SPF; and

Support pensions information dissemination.

The NBP and the SPF have been structured to respond to implementing the new Pension Law. The by-laws, regulations, and key functional terms of reference will have been completed and endorsed by the Council of Ministers;

Human resources are in place for day-to-day running and management of the NBP and the SPF;

A contribution management process and system is in place, to ensure proper collection and management of contributions from civil servants and public agencies into the SPF;

A strategic plan for systems design and acquisition is in place;

The SPF will have in place policies, procedures, and human resource for prudent investment of reserves;

A public information campaign is launched by the NBP and awareness raised amongst stakeholders.

Component 2

Support the Development of Actuarial and Pension Policy Analysis Capacity for the SPF

The NBP will have the

Support the development of the SPF organizational unit responsible for pension policy and actuarial analysis;

Provide training to a core group of staff at this unit to undertake policy

A functional unit is established within the SPF responsible for pension policy and actuarial analysis;

Staff will have been exposed to best practice pension system


Component Sub-Components Expected Outputscapacity to undertake actuarial analysis of the pension scheme, and to conduct periodic actuarial analysis as required by the new Pension Law

analysis; including pensions core course, PROST training, certificate program, implementation workshops; and

Review and analysis of the Pension Law.

design, and have the ability to use computerized tools for actuarial analysis (such as PROST).

Component 3

Contribute to the Improvement of the Physical Infrastructure of the NBP

The NBP, and related offices, will be housed in quality physical infrastructure, facilitating the delivery of services to the beneficiaries in a safe and accessible environment

Audit of existing infrastructure of the network of pension administration offices and determine needs;

Rehabilitation of existing infrastructure (financed by GOI); and

Construction of new headquarters for the NBP (financed by GOI).

A full picture of the state of physical infrastructure for NBP offices will be completed, along with requirements for improvements;

A strategic plan for physical infrastructure renewal and rehabilitation is completed and informs construction decisions.

Component 4

Support the Unification of the Mandatory Pension Provisions in Iraq

The Social Security System is merged with the State Pension Fund, in terms of policies and benefits, and is administered by the NBP

Assist in the administrative merger of the SSS under the NBP, as mandated to take place by January 1, 2010;

Support to discontinue the segmentation of the labor force across the public and private sectors; and

Harmonize policies and rules between the public and private schemes.

Polices on contributions and benefits are harmonized across the two pension schemes;

The two pension schemes are effectively managed by the NBP.

Component 5

Facilitate the Development of Long-Term National Old-Age Income Protection Strategy for Iraq

Strategy developed detailing a plan to increase coverage beyond the existing 25 percent of population

Technical assistance will be provided to support the development of a long-term old-age income security strategy for Iraq with a focus on the expansion of social insurance coverage.

Strategy developed and informs policy making.


21. While the World Bank will provide key technical assistance inputs, the GOI is committing to provide financial support to key investment areas. This is expected to include GOI financing for: (i) acquisition of the pension administration information system (with oversight support and training from the World Bank); (ii) recruitment of new and qualified staff for the NBP; (iii) launching of a public information campaign; and (iv) improving the physical infrastructure of NBP headquarters and regional offices. In addition, the technical assistance is designed specifically to build the institutional capacity of the NBP through extensive training to ensure sustainability during and after the technical assistance is closed. The estimated costs including the GOI contribution is as follows (Annex III provides detailed costing for the technical assistance, and Annex IV provides a detailed implementation schedule):

Component Financing (in US$ millions)World Bank GOI

Component 1: Develop Capacity to Implement the new Pension Law

2.68 5.50

Component 2: Support the Development of Actuarial and Pension Policy Analysis Capacity for the SPF

0.46 0.02

Component 3: Contribute to the Improvement of the Physical Infrastructure of the NBP

0.20 25.00

Component 4: Support the Unification of Mandatory Pension Provisions in Iraq

0.22 -

Component 5: Facilitate the Development of Long-Term National Old-Age Income Protection Strategy for Iraq

0.22 -

Project Management and Implementation Support

Policy and Project Management Training for NBP Staff

Implementation Support Human Resources Operating and Contingency Costs

0.47

0.850.70

---

Total 5.80 30.50

IV. CRITICAL RISKS

22. The overall risk associated with the Technical Assistance is Substantial:

Risk Mitigation Measures Risk Rating After Mitigation

World Bank staff workload does not allow them to promptly respond to client needs

One international ETC and up to three national full-time consultant (Iraq-based) will be hired to exclusively provide support to PRISTA

M

Ability of World Bank staff to implement its assistance

The launching and implementation of TA activities will be tailored to the evolving political

S


program in case of a deterioration in the political environment and security

and security situation. The World Bank team will continue to rely on the presence of the Interim Iraq office in Amman as a strategic location for business continuity.

Deterioration of Iraq fiscal and economic performance in light of the global financial crisis causing difficulty in the implementation of critical reform such as pension reform

The World Bank staff will continue to work closely with the Iraqi government supporting the implementation of the reform through risk mitigation and risk coping measures.

M

Ability of NBP, SSS and MOF staff to regularly and frequently travel abroad, or to convene in workshops in Baghdad

The larger amount of NBP/SPF staff to receive training will be during implementation workshops held in Baghdad. International implementation events will be followed by these local workshops, delivered by Iraqi consultants to ensure widest possible interaction and capacity building. Costs for travel to Iraq have been accounted for in the TA, to be utilized upon management and security clearances.

S

Existing capacities and risk of turnover of trained staff

The approach of the TA is to (i) involve a wide section of the NBP and SPF staff in the capacity building events; and (ii) a major focus will be to build the institutions themselves to allow them to withstand staff turn-over.

S

Mismatch of participants with training provided

The list of participants and their qualifications will be carefully reviewed by both NBP and the World Bank prior to inclusion in implementation events.

M

Reputational risks associated with World Bank-execution of the Technical Assistance

The focus of World Bank involvement is on providing direct support and advice to GOI. World Bank staff and consultants engaged in providing support will work closely with GOI staff to present options, and will not “mandate” solutions. GOI will be selecting options that best fit requirements and local context.

M

Lack of ownership towards the activities

Request for PRISTA has been requested by and discussed with MOF and NBP in numerous occasions in the past year. The Technical Assistance has been approved by ISRB.

L

H = High; S = Substantial; M = Moderate; L = Low

V. IMPLEMENTATION ARRANGEMENTS

23. The technical assistance will be executed by the World Bank, in close coordination with the NBP and MOF. The request by MOF for World Bank-execution of the TA and approval of the Iraq Strategic Review Board (ISRB) of the technical assistance is shown in Annex V. The focus of the TA is to provide direct implementation support to GOI (NBP and MOF) in implementation of the new Pension Republic of IraqPension Reform Implementation Support Technical Assistance

Law. While contextual knowledge creation and capacity building are key aspects of this support, the TA is not financing any studies or generic sector strategies. The key implementation modality, which will be common across much of the activities envisaged under the technical assistance is shown in the figure below:

24. The main features of the implementation arrangements, reflecting many of the new implementation approaches indicated in the Third ISN, are as follows:

Focus will be on specific implementation support tied to the provisions of the new Pension Law, as opposed to general capacity building workshops, as well as provision of “on-demand” advisory services and support;

Institutional building will be a main focus, through support for the development of NBP guidelines, regulations, and human resource development activities, but also more importantly on its ability to utilize its own financial resources for capital investments;

Knowledge creation will be a main feature, but will be accompanied by activities that will translate policy notes and guidance into specific implementation activities;

The World Bank team will focus on technical assistance areas, but will also provide technical assistance support to elaborate options for the capital investment requirements allowing the NBP/GOI to utilize its own financial resources for these items;

Knowledge and “on-demand” advisory services will be provided by a mix of World Bank and international and national consultants;

Technical assistance funds will be used to recruit a full-time experienced project manager (likely based in the region), allowing for continuous engagement in implementation and management, and to maintain the ability to deliver the provisions of the technical support activities;

Full-time national staff will be recruited in Baghdad who will provide “on-the-ground” support for the work;

Periodic (at least three times per year) reviews will be undertaken by the World Bank team responsible for implementation;


World Bank Expert/International Consultant

TORs developed in closeconsultation between Bank and NBP

Review of terms of reference/Background documents

Implementation Workshop:Involving NBP/MOF/GOI Key Staff and Bank experts/consultantsother stakeholders at invitation of GOI

Production of implementation Workshop facilitation material

Development of options/scenariosand implementation action plans

Knowledge transfer and capacity building

NBP staff implementation,supported by national consultantsand Bank on-demand adviceWorld Bank review, support, and feedback

Possible missions (dependant on management and security clearance) to Baghdad to undertake selective implementation-related events; and

The World Bank, as requested by the GOI, is ready to provide any needed assistance to support donor coordination.

25. The choice to have World Bank execution of the TA was based on a request by MOF and was selected as the best option for this particular project. In the case of this TA, the NBP is a newly established entity, created under the new Pension Law, and reporting to the Minister of Finance. As such the NBP is only now organizing itself and building its resource base to implement the new Pension Law. World Bank execution is sought given the following factors: (i) the lack of adequate capacity at the NBP to engage in the administrative and logistical requirements of the TA, particularly for those implementation events that need to take place outside Iraq; (ii) the ability of the World Bank to mobilize recognized international consultants, which is not likely to be possible should contracting be done directly with GOI; and (iii) the unfamiliarity of the NBP with World Bank guidelines, which have previously been a major factor affecting performance of many projects in Iraq. Similarly, “split” execution was considered but then rejected, given the complexity of such an arrangement and the high risks associated with misalignment in sequencing and processing of activities. In addition the ISN includes a diagnosis of factors that have affected, and in many cases hampered, the implementation of the World Bank Iraq portfolio. Such factors include the difficult security environment, existing capacities, unfamiliarity with World Bank policies and procedures, to name a few. Concurrently, the ISN makes the case for the introduction and use of new and different implementation modalities for Iraq.

26. A Pension Reform Management Office (PRMO) was established within the NBP. The PRMO was created at the NBP after enactment of the new Pension Law, in response to the implementation needs of the law. The role of the PRMO is to coordinate pension reform implementation (including donor relations), and will act as counterpart to the World Bank in implementation of PRISTA. The PRMO is headed by the Director General of the NBP, and is currently staffed with five individuals. The PRMO had initially received baseline training in project management and organizational skills as part of USAID’s contribution to the NBP. However, the PRMO will require additional training in project management, information technology, procurement, financial management, and contract management. Capacity building for the PRMO is built into PRISTA.

27. Consistent with the ISN, the proposed technical assistance supports an enabling environment for stakeholder consultations during the implementation process. The focus of the technical assistance is on supporting implementation of reforms that have already been passed, and which benefited from an earlier process of consultation by GOI with relevant stakeholders. Nevertheless, in keeping with good practices, the World Bank will work closely with MOF and NBP to ensure participation by stakeholders, at the invitation of GOI, in key technical assistance activities.

28. The implementation period is expected to be three and a half years. Implementation will be phased to allow for focus on immediate implementation requirements arising from the new Pension Law, while ensuring strategic focus on supporting the development of the long-term national old-age income protection strategies for Iraq.


ANNEX I : SUMMARY OF LAW 27/2006 AS AMENDED IN 2007 (NEW PENSION LAW)

The following are key highlights from Law #27 and related amendments, enacted in December 2007:

The Amendments apply uniform eligibility requirements based on age and length of service for all government employees who have retired after initial passage of the law in January 2006 (“new” scheme).

For those who retired prior to January 2006, the amendments include an adjustment table to replace emergency payments with earning-related benefits (“old” scheme). Consequently, after the adjustment, the retirees will no longer be “old” and “new”, which was always a sensitive distinction after 2003. More importantly, the amendments removed the condition of Law 27/2006 that only people working in a public entity upon the publication date could retire under the provisions of the law.

A State Pension Fund administered by the National Board of Pensions will be set up to collect contributions from 2.6 million public employees and to establish and pay pensions for the new pensioners. The SPF enjoys a high degree of institutional independence, its contribution revenues can only be used for pension benefits and administration.

Employees will be contributing 7% of their wages, while the state will contribute 12%. Sustainability assessments and related adjustments are to be carried out every year as of 2011.

The Chairman of the National Board of Pensions will be at a Deputy Minister level reporting to the Minister of Finance. The State Pension Fund will merge its operations with the Social Security System, which currently falls under MOLSA, by 2010.

The amended law comes into force (retroactively) on January 17, 2006. Payment of adjustments will be effective as of October 2007. Mandatory retirement is now set at 63 years of age. Vesting period is 15 years of service. Accrual rate

is 2% if the person retires before age 60 and 2.5% thereafter. The pensioners of the “old system” will be supported by the Federal Budget while the “new” retirees

by the newly created State Pension Fund. Years of service (YOS), which counts under the pension formula are: (i) length of service for which

pension contributions were paid; (ii) years during which employees were out of service for political reasons, provided that retroactive payment of contributions takes place at time of retirements; and (iii) years spent in regular studies for military and security forces in colleges and high institutes, which end in the granting of a degree before active service commences.

Pension calculations are calculated as follows:

o For employees age 50 and over, but less than 60, and with a minimum of 25 YOS, the pension formula is as follows:

Pension Salary = (YOS x 2%) x Average Salary

o For employees age 60 and over, with a minimum of 25 YOS, the pension formula is as follows:

Pension Salary = (YOS x 2.5%) x Average Salary

o For employees age 55 and over, with a minimum of 30 YOS, the pension formula is as follows:

Pension Salary = (YOS x 2.5%) x Average Salary


Replacement rates go according to the following table (Full age and disability pensions cannot be lower than IQD 150,000/month. Survivor pensions cannot be lower than IQD 130,000/month):

YOS 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40+

Age 50+ 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80

Age 60+ 62.5 65 67.5 70 72.5 75 77.5 80 80 80 80 80 80 80 80 80

Age55+and30

YOS

- - - - - 75 77 80 80 80 80 80 80 80 80 80

Basic requirements for retirement and pension benefit formula are as follows:

Category Type of Pension

Retirement Age Length of Service

Pension Formula

Civilians working for public entities, SOEs employees

Full age 50 and over

60 and over

55 and over

25

25

30

2% per YOS before age 60

2.5% per YOS

2.5% per YOSDisability Regardless 15 or assimilated

to, in case YOS fewer than 15

2.5% per YOS

Survivors Regardless 15 or assimilated to, in case YOS fewer than 15

50% for one survivor75% for two survivors100% for three survivors or more (from the pension of the deceased)

Military, Security Forces, Full age 50 and over 20 2.5% per YOS

Disability Regardless 15 or assimilated to, in case YOS fewer than 15 2.5% per YOS

Survivors Regardless 15 or assimilated to in case YOS fewer than 15

50% for one survivor75% for two survivors100% for three survivors or more (from the pension


Category Type of Pension

Retirement Age Length of Service

Pension Formulaof the deceased)

Dismantled entities employees Full age 50 and over 15 Pension

calculated according to a defined/published scheduled

Disability Not Applicable Not Applicable Not ApplicableSurvivors Regardless 15 or assimilated

to in case YOS fewer than 15

50% for one survivor75% for two survivors100% for three survivors or more (from the pension of the deceased)


ANNEX II: KEY TERMS OF REFERENCE

A team from the National Board of Pensions of Iraq (headed by the Director General of the NBP), the Ministry of Finance, and MOLSA’s Social Security System and the World Bank team discussed the implementation of the proposed Pension Reform Implementation Support Technical Assistance and agreed on the broad outlines of the Terms of Reference for the various activities described in this concept note. The summary of the Terms of Reference for the various PRISTA components is as follows:

Component 1: Develop Capacity to Implement the Public Sector Pension Law

Build institutional capacity at the NBP to implement the provisions of the Public Sector Pension Law

Law 27/2006 as amended in 2007 created the new institutions of the National Board of Pensions and the State Pension Fund, but these organizational structures are yet to be truly established. An international consultant with specific experience in the management of social insurance schemes will be hired to propose options, with the NBP, for the organizational structure and business model for the SPF. The relevant stakeholders and SPF staff will participate in the development of the organization structure through a workshops focused on the topic. Particular attention will be paid to the decision on the business model determining what organizational activities will be carried out by the governorate level SPF branches and the SPF headquarters. The introduction of the new organizational structure and business model will be supported by local consultants in a series of implementation workshops.

Support the development and implementation of a human resource development plan for the NBP

The enactment of Law 27/2006 created a misalignment between the needs of the new tasks defined in the law and the skills composition of the staff currently assigned to the SPF. To address this problem an international consultant with specific experience in human resource management and planning will be hired to support the NBP in identifying human resource management requirements for the SPF. In particular, the skills already present through the composition of staff already assigned to the SPF will be assessed. Also, the skills necessary to carry out all the (new) tasks defined by Law 27/2006 will also overviewed. The human resource management requirements will have to address how to fill the skill gap emerging from the assessments above, i.e., the plan will have to highlight what skills could/would be acquired/developed via hiring and training. The related hiring and training plans will also have to be formulated. The assessment and the implementation will be supported by a series of workshop involving the relevant stakeholders and SPF staff. Local consultants will also support the implementation of the SPF’s human resource development requirements.

Support the development of a system for contribution management at the SPF

The Iraqi public sector pension scheme did not collect contributions from plan members prior to the enactment of the new Pension Law, so the development of a robust contribution collection system is a first order implementation activity. An international consultant with specific experience in the development of social insurance contribution systems will be hired to propose options for a system for contribution collections. The contribution collection system will need to be developed in line with the future needs of a consolidated public and private pension scheme, i.e., the system should be able to support enforcement of contribution collection from private sector entities as well. The related record keeping system needs to be individual account based to support future developments of the pension system design and the social insurance coverage extension. Also, the system needs to be connected with a record keeping system capable of storing individual wage histories as the new defined benefit formula admits an average wage measure that is increasingly reliant on longer wage histories. The implementation


of the contribution collection system will be supported by local consultants and workshops involving the relevant stakeholders and SPF staff.

Support the design of a pension administration information system and provide technical assistance for systems acquisition

To allow the NBP and the SPF to function in an efficient manner, and to ensure effective implementation of the policies in the new Pension Law, and in support of improved transparency for the whole system, the need is immediate for an information system to allow for administration of the new pensions system. A specialized consulting firm will be hired to support the design of the pension administration information system, to provide advice and support throughout the acquisition period of the new system, and to provide training and knowledge transfer to the NBP and the SPF. The system itself and the capital investment requirements associated will be financed by GOI, and acquired using procurement laws of GOI. The pension administration system will be designed in accordance with the enhanced system model and processes supported under the preceding activities in this component. The main features of the system will include registration, contribution management, financial management, investment management, record keeping, eligibility determination, and benefit payments. The approach to system implementation will rely on best practices in implementation of IT systems, focusing on a phased and gradual approach to the introduction of specific modules, while undertaking a parallel exercise of change management and building the capacity of staff and the institution to plan, manage, and operate the system both at the technical and the business level.

Acquisition of the pension administration information system (financed by GOI)

The GOI will acquire the information system in accordance with the need determined above, with advice and support provided by the World Bank and the consulting firm.

Support the development of prudent investment policies and management procedures for the SPF

As the new pension scheme will have many more contributors than pension beneficiaries at the early stage of system maturation, the scheme will accumulate significant reserves as well as future liabilities to be funded via prudent management of those pension reserves. An international consultant with specific experience in the prudential requirements of pension reserves management will be hired to propose options for investment policies and investment management practices. The international consultant, assisted by local consultants and a series of policy development and implementation workshops, will assess the set of available investment instruments, propose desirable options for the composition of portfolios with assets providing a great deal of security, but also nonnegative real investment return for the benefit future pension beneficiaries. The international consultant will have to address the advantages and risks of international diversification of the pension reserves portfolio. Furthermore, the international consultant needs to evaluate how government bonds in the portfolio could help the government to alleviate its fiscal stress (e.g. caused by the financing requirement of the “old scheme”) without compromising the return expectations and the explicit (and even tradable) asset accumulation of the SPF. The international consultant will also propose options for an investment management structure separating the responsibilities in setting investment policies and the implementation of these investment policies. The consultant will have to propose an implementation structure of investment management sharing the implementation responsibilities between specialized internal SPF staff and specialized organizations with credible knowledge and experience in portfolio management.


Support pensions information dissemination

Knowledge about the new public sector pension system and about the systems of old-age income security is scarce within the Iraqi society. An international consultant will be hired to support the NBP and the SPF to develop and implement a public communication strategy. The international consultant will help the NBP/SPF leadership to identify the key set of information/messages to be distributed to the general public in an “easy to consume manner” through public communication activities and to identify the communication channels/media mix to be utilized during the implementation of the public communication strategy. The development and the implementation of the public communication strategy will be assisted by local consultants and a series of workshops involving the relevant stakeholders and SPF staff. The strategy should address the main functions, the development and the system of regular updates for the SPF website.

Component 2: Support the Development of Actuarial and Pension Policy Analysis Capacity for the SPF

Support the development of the SPF organizational unit responsible for pension policy and actuarial analysis - Provide training to a core group of staff at this unit to undertake policy analysis

Law 27/2006 as amended in 2007 requires that the financial sustainability of the SPF pension scheme is assessed on a regular basis using actuarial calculations. Unfortunately, the necessary demographic and labor market information about the system contributors was not available at the time of the legislative process, the first set of reliable population data is expected to emerge from the contributor and beneficiary surveys of the ESPP. Even if the data was available the necessary skills to carry out actuarial calculations and to support decisions in pension policy is not available at the NBP/SPF. First, the SPF management will identify those (junior) staff members with sufficient prior quantitative training who will serve in the actuarial and policy analysis unit after they go through the related training. The actuarial training will be initiated by the World Bank team via training on the Pension Reform Options Simulation Toolkit (PROST). The SPF actuarial staff will also undertake formal actuarial training leading to an actuarial certificate. The World Bank team will assist in setting the criteria for the training provider and the requirements in the training curricula. Members of the actuarial team will establish membership in at least one of the international professional association of actuaries to ensure regular exposure to the most recent developments in actuarial science. The World Bank team will provide additional training to the core staff of the actuarial team to establish a link between the outcomes of an actuarial analysis and the resulting possible pension policy implications.

Review and analysis of the Public Pension Law

The first truly high stake analysis that the new actuarial team at the SPF needs to carry out is the analysis of sustainability of the SPF scheme as required by Law 27 to support necessary policy updates. The World Bank team or a specialized international consultant actuary will support the completion of this task to provide quality control and on-the-job training. The World Bank team or the international consultant will also support the SPF/NBP to evaluate the actuarial analysis in terms of policy recommendations including, but not limited to, legislative proposals on the pension system design.

Component 3: Contribute to the Improvement of the Physical Infrastructure of the NBP

Audit of existing infrastructure of the network of pension administration offices and determine needs

The current physical infrastructure of the SPF is inadequate for its broad set of tasks and functionalities. Both the IT resources and the office network need significant capital expenditures to improve their Republic of IraqPension Reform Implementation Support Technical Assistance

adequacy. The GOI is committed to provide the financial resources for these tasks; however, the extent of the needs is ambiguous. That is why a consulting firm will be hired to (i) support identification of the needs towards the physical infrastructure of the SPF given the organization’s functionalities and main tasks, (ii) audit the current infrastructure and (iii) propose options for development based on a gap analysis.

Rehabilitation of existing infrastructure (financed by GOI)

The GOI will rehabilitate the existing NBP infrastructure in accordance with the need determined via the efforts of the engineering firm conducting the infrastructure audit.

Construction of new headquarters for the NBP (financed by GOI)

The current headquarters of the SPF is inadequate especially given the damage it was exposed to during the recent conflict period. The GOI will make arrangements for building a new headquarters in line with the functional needs of the NBP.

Component 4: Support the Unification of the Mandatory Pension Provisions in Iraq

Support to discontinue the segmentation of the labor force across the public and private sectors - Harmonize policies and rules between the public and private schemes

Law 27/2006 as amended in 2007 requires the merger of the public and private sector pension schemes. What the “merger” means is not clear from the related legal provision, but the ultimate intent behind such harmonization from a policy perspective is to discontinue the segmentation of the labor force across the boundary of the public and private employment sectors, i.e., allowing greater degree of labor mobility along a development path where the private formal employment sector is expected to play a more dominant role in employment creation. If the goal is to remove the constraints of changing jobs across the private and public sectors, then first the rules of pension provision (contribution requirements, benefits, etc.) need to be harmonized. The World Bank team or an international consultant will assist the GOI to harmonize the rules of pension provision in the public and private sectors. The harmonization needs to take into account that currently there are different components in the private and public social insurance packages, e.g. health insurance is only provided to private sector workers whereas public sector workers are entitled to public health services in a noncontributory manner. The harmonization also needs to address the differential need for certain components of the social insurance package across the two sectors, e.g. work injury and unemployment insurance coverage would play different roles in the private and public sectors. However, there is no reason for the pension related contribution rate, the accrual rate and the pension benefit formula to be different across the public and private sectors. If the GOI would like to provide preferential pension treatment to certain groups of employees such preferential treatment should not take effect through different pension schemes, but rather through “add-ons” to the universally applicable pension coverage. Earned pension rights under such uniform pension rules should be portable from job to job regardless of the sector of employment. The work on the unification/harmonization of pension rules needs to play special attention to transition rules ensuring that no covered population group will be exposed to new rules without a sufficiently long period before retirement for preparing to face the effects of changes in the pension formula/pension rules. The harmonization/unification of the public and private sector pension rules will be supported by local consultants and a series of workshops involving the relevant stakeholders and SPF/SSS staff. The harmonization of the SPF and SSS pension rules will require legislative action so the NBP will need to prepare the legislative draft reflecting the unified/ harmonized policy design.


Assist in the administrative merger of the Social Security System under the NBP, as mandated to take place by January 1, 2010

Once the policy design of the unification/harmonization of public and private sector pension schemes is completed the merger could be administratively completed as well. The “administrative merger” will need to consider the consolidation of functional departments, the IT systems and also the differential asset and liability positions of the public and private sector schemes prior to the consolidation. An international consultant with specific knowledge in the administration of social insurance systems will be hired to facilitate the organizational merger in accordance with the priorities listed above. It is unlikely that the merger can be completed within the mandated legislative deadline, although it is possible that as of January 1, 2009 the NBP will encompass three distinct pension schemes, the SPF, the SSS and the “old (public) system” in their prior-to-merger distinct organizational structures.

Component 5: Support the Development of Long-Term National Old-Age Income Protection Strategy for Iraq

Law 27/ 2006 as amended in 2007 represent a significant improvement in pension system design in Iraq, but this legislation falls short of ensuring old-age income security for the population of Iraq. The consolidated coverage of the existing pension schemes in Iraq provide coverage to roughly one quarter of the labor force, the already somewhat privileged portion of the society possessing a (stable) formal sector job. Once the pension system is strengthened administratively and the design/sustainability of the existing schemes is improved, the focus needs to shift towards extending social insurance coverage and enriching the social insurance package with components protecting against other social risks. The World Bank team or an international consultant will assist the GOI to develop a national strategy of old-age income security with medium- and long-term focus areas. The strategy needs to explore the extension of social insurance coverage towards those (often informal sector participants) who have limited savings capacity using targeted subsidies in the form of matching contributions. The strategy also needs to balance the interests of adequate social protection and economic efficiency, i.e. the systems of pension design need to be consistent with a labor market environment providing incentives for employment in the case of employees and job creation in the case of employers. The strategy will have to recognize that in an economy where the bulk of employment creation happens in the private sector (i.e. along the envisioned development path for Iraq), where frequent employee–employer separations are necessary due to the product market driven resource reallocation of firms, the social insurance coverage will need to incorporate a component providing temporary income support for the risk of loss income in unemployment. Furthermore, the national strategy for old-age income security needs to recognize that the sources of old-age income should be diversified across various mandatory and voluntary pension pillars in line with the general development level of Iraq. Developments in the financial sector infrastructure will allow for more savings for old-age outside the mandatory pay-as-you-go pension scheme(s) and that will require regular updates in the overall architecture of the pensions system. Best international practices of pension design would suggest a regular (once in a decade) institutional review of the adequacy of the architecture of the systems of old-age income security resulting in legislative proposals to respond the needs identified during the process.


ANNEX III: DETAILED COSTING

Activity Unit CommentYear 1 Year 2 Year 3 Year 4 Year 1 Year 2 Year 3 Year 4 Year 1 Year 2 Year 3 Year 4 World Bank GOI/Other

Build the institutional capacity of the NBP to implement the provisions of the Unified Pension law International consultant 4 months 2 months 23,500 29,200 94,000 58,400 152,400 Includes 2 trips/year

Local consultant 4 months 2 months 4,700 6,100 18,800 12,200 31,000 Includes 2 trips/yearImplementation Workshop 2 1 36,000 36,000 72,000 36,000 108,000

Subtotal 291,400 2. Support the development and implementation of human resource development plan for the NBP International consultant 3 months 3 months 25,400 25,400 76,200 76,200 152,400 Includes 2 trips/year

Local consultant 3 months 3 months 5,200 5,200 15,600 15,600 31,200 Includes 2 trips/yearImplementation Workshop 2 1 36,000 36,000 72,000 36,000 108,000 Implementation Workshop (local) 4 4 10,000 10,000 40,000 40,000 80,000

Subtotal 371,600 3. Support the development of the system for the new contribution collection functionality of the SPF International consultant 3 months 2 months 25,400 29,200 76,200 58,400 134,600 Includes 1 trip/year

Local consultant 3 months 2 months 5,200 6,100 15,600 12,200 27,800 Includes 1 trip/yearImplementation Workshop 1 36,000 36,000 - 36,000 Implementation Workshop (local) 1 1 10,000 10,000 10,000 10,000 20,000

Subtotal 218,400 4. Support the design of a pension administration system specific for the pension design set in the Unified Pension Law, and provide implemenation oversight and support International firm firm firm 300,000 500,000 300,000 500,000 800,000

Include local and international training

Subtotal 800,000

5. Acquire pension administration IT system IT Equipment & Package Software 1,000,000 3,000,000 1,000,000 1,000,000 3,000,000 1,000,000 5,000,000 Subtotal - 5,000,000

6. Support the development of prudent investment policy and investment management procedures for SPF reserves International consultant 2 months 4 months 2 months 29,200 23,500 29,200 58,400 94,000 58,400 210,800

Includes travel to workshops

Local consultant 2 months 4 months 2 months 6,100 4,700 6,100 12,200 18,800 12,200 43,200 Include travel to workshops

Implementation Workshop 2 2 36,000 36,000 - 72,000 72,000 144,000 Subtotal 398,000

7 Support the design of the public relations and communication campaign International consultant 4 months 23,500 94,000 94,000


Local consultant 4 months 4,700 18,800 18,800 Include travel to workshops

Implementation Workshop 1 36,000 36,000 112,800 Implementation Workshop (local) 3 10,000 30,000 131,600 Local Symposium - Parliament 1 20,000 20,000 244,400

Subtotal 601,600 8. Implementation of Public Relation campaign Includes printing 250,000 250,000 250,000 250,000 500,000

Subtotal - 500,000

Quantities Unit Costs Total Costs

I. Develop Implementation Capacity and Implement Law 27/2006 as Amended in 2007

Financing

Republic of Iraq 21Pension Reform Implementation Support Technical Assistance

1. Support the development of the SPF organizational unit responsible for pension policy and actuarial analysis International consultant 2 months 2 months 17,600 17,600 35,200 35,200 70,400

Develop organizational unit

Subtotal 70,400 - 2. Recruit SPF Actuarial and Pension Policy staff

Develop organizational unit

Subtotal3. Train actuarial and pension policy staff on the desirable design of "good" pension schemes and on the practice of actuarial projections/use of selected actuarial software application PROST training 3 36,000 108,000 108,000

Certificate training 2 staff 3 staff 35,000 35,000 70,000 105,000 175,000

9 months program, include 2 months outside the country

Membership Actuarial Association 2 3 5,000 5,000 10,000 15,000 25,000 Subtotal 283,000 25,000

4. Review/Analysis of Pension Law International consultant 3 months 25,400 76,200 76,200 Implementation Workshop 1 36,000 36,000 36,000

Subtotal 112,200 - III. Contribute to the Improvement of the physical infrastructure of the NBP Administration1. Audit the physical infrastructure of the network of pension administration offices, determine the physical infrastructure needs in line with client service requirements, and develop medium-term physical infrastructure improvement plan Local firm 6 months 200,000 200,000 200,000

Subtotal 200,000 - 2. Rehabilitation of existing infrastructure To be determined To be determined by consulting firm - - - -

Subtotal - - 3. Construction of new headquarters for the NBP Construction costs Lumpsum 1,000,000 24,000,000 1,000,000 24,000,000 25,000,000

Includes design and supervision services

Subtotal - 25,000,000

1. Support policy design for the unification of the SSS and NBP pension schemes International consultant 4 months 23,500 94,000 94,000


Local consultant 4 months 4,700 18,800 18,800 Includes travel to workshops

International workshop 2 36,000 72,000 72,000 Subtotal 184,800 -

2. Process the necessary legislative changes in association with the Unified Mandatory Pension Policy Design, including the revision of the legislated unification deadline of 2010 NBP Management - -

Subtotal - - 3. Suppor the administrative consolidation of the previously stand-alone pension schemes under the NBP International consultant 2 months 17,600 35,200 35,200

Subtotal 35,200 -

II. Support the Development of actuarial and pension policy analysis capacity for SPF

IV. Support Unification of the mandatory pension provision in Iraq


VI. Project Management and Implementation SupportPolicy and Project Management Training for NBPPRMO training (3 staff) ILO Development Program 3 weeks 3 weeks 3 weeks 20,000 20,000 20,000 60,000 60,000 60,000 180,000 5 persons x 3 weeksLaunch workshop Implementation Workshop 1 36,000 36,000 36,000 15 government staff

Location Based Training for NBP Staff Week 2 2 1 50,000 50,000 50,000 100,000 100,000 50,000 250,000 4 persons/year x 2 weeks

Subtotal 466,000 Project Coordinator Person-year 1 1 1 0.5 150,000 150,000 150,000 150,000 150,000 150,000 150,000 75,000 525,000 National Staff (Baghdad-based) Person-year 3 3 3 1.5 30,000 30,000 30,000 30,000 90,000 90,000 90,000 45,000 315,000

Subtotal 840,000 Operating and Contingency CostsProject Coordinator Travel 1 1 1 0.5 25,000 25,000 25,000 25,000 25,000 25,000 25,000 12,500 87,500 National Staff travel 3 3 3 1.5 15,000 15,000 15,000 15,000 45,000 45,000 45,000 22,500 157,500 Baghdad travel cost 1 1 1 0.5 25,000 50,000 50,000 50,000 25,000 50,000 50,000 25,000 150,000 Local operating costs & contingencies 1 1 1 0.5 20,000 20,000 20,000 20,000 20,000 20,000 20,000 10,000 70,000 Translation costs 1 1 1 0.5 30,000 30,000 30,000 30,000 30,000 30,000 30,000 15,000 105,000 Contingencies 1 1 1 0.5 40,000 40,000 35,000 35,000 40,000 40,000 35,000 17,500 132,500

Subtotal 702,500 - TOTAL 5,801,900 30,525,000


ANNEX IV: IMPLEMENTATION SCHEDULE


ANNEX V: MOF AND ISRB APPROVALS


In the Name of God

Republic of IraqMinistry of Finance Minister's Office

MEMORANDUM

To: Hedi Larbi, the World BankFrom: Baqir Jabir Al Zubaidi, Minister of Finance Date: April 20th, 2009 Subject: Technical assistance to implement pension system reforms

Dear Mr. Larbi, We would like to extend thanks to the World Bank team for their efforts to develop the technical assistance project on implementing reforms in the pension system, and we would like to inform you that we have approved that the Bank will execute the technical assistance in direct coordination with the National Board of Pensions, as stated in your Letter dated December 17 th, 2008.

Yours faithfully,

Baqir Jabir Al Zubaidi

Minister of Finance


In the Name of God

Republic of IraqMinistry of Finance Economic Department

To: Director General, National Board of PensionsDate: March 5th, 2009 Subject: Meeting of the Strategic Review Board

Kind Greetings,

We enclose the letter of the Ministry of Planning and Development Coordination/Iraq Strategic Review Board requesting your attention to the technical assistance project to support pension reform in Iraq, that is financed by the Iraq Trust Fund that is managed by the World Bank for the benefit of the Ministry of Finance, and ask you to begin the implementation of the project that was approved by the Iraq Strategic Review Board in coordination with the international organizations.

With regards,

Mr. Amar Abdul-Jabar Musa

Director General of the Economic Department


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