The Saudi government recently passed amendments to the Social Insurance Law to support retirement benefits for a growing aging population by increasing the statutory retirement age, revising the old-age pension formula, raising contribution rates, and extending the contribution period required for early retirement.
The new Social Insurance Law came into effect on 3 July 2024.
Background
The reforms introduce a new social insurance system for Saudi citizens entering the workforce for the first time from 3 July 2024, while the previously existing social insurance system continues to be in force for Saudi citizens who have made contributions to the civil pension or social insurance systems prior to 3 July 2024.
In addition, the amendments to the statutory retirement age and the contribution period for early retirement apply to Saudi citizens who were aged below 50 Hijri years (or 48.5 Gregorian years) or who had less than 20 years of contributions on 3 July 2024.
Saudi citizens who were aged 50 Hijri years (or 48.5 Gregorian years) or older or had at least 20 years of contributions on 3 July 2024 remain covered by the previously existing social insurance system and are unaffected by the reform.
Key details
The most relevant changes for Saudi citizens who are new to the labor market and have not made contributions to the civil pension or social insurance systems prior to 3 July 2024 are as follows:
- Statutory retirement age: The new statutory retirement age has changed from 60 Hijri years (or 58 Gregorian years) to 65 Gregorian years.
- Old-age pension formula: The monthly old-age pension is now calculated as 2.25% (down from 2.5%) of a contributor's average contributory wage (calculated on the basis of the average of the highest contributory wages for 180 months of the contribution period), multiplied by the total number of years of contributions and subject to a maximum of 100% of the contributor's average contributory wage.
- Contribution rates: The employee and employer contribution rates will each gradually increase from 9% to 11% of contributory wages by 0.5% each year from 3 July from 2025 to 2028.
- Contribution period for early retirement: The contribution period required for early retirement is 30 years and will now only be possible at age 55, provided the contribution period required for early retirement has been met.
The most relevant changes for Saudi citizens aged below 50 Hijri years (or 48.5 Gregorian years) or who had less than 20 years of contributions as of 3 July 2024 are as follows:
- Statutory retirement age: Previously, the statutory retirement age was 60 Hijri years (or 58 Gregorian years). The statutory retirement age is now between 58 and 65 Gregorian years based on the contributor’s age on 3 July 2024. The statutory retirement age has increased by four months for contributors aged 48 to 48.5 and has increased by an additional four months for each year in age below age 48 until reaching 65 years for contributors younger than age 29.
- Contribution period for early retirement: The contribution period required for early retirement is now between 25 and 30 years, depending on the contributor’s total contribution period on 3 July 2024. For contribution periods of 19 years and more, the period required for early retirement is 25 years. For each year less of contribution an additional 12 months of contribution is required for early retirement until reaching 30 years for contribution for contribution periods of under 15 years. Early retirement, provided that the contribution period required for early retirement has been met, will now only be possible up to 10 years before the statutory retirement age. Previously, early retirement could be claimed at any age once the contribution period required for early retirement had been met.
Maternity benefits
Under the new Social Insurance Law, maternity benefits will no longer be financed by employers but instead through social insurance. This change applies to all Saudi and non-Saudi employees subject to the Occupational Hazards Branch (the branch of Saudi social insurance that applies to all public- and private-sector employees who are covered by labor law and provides benefits in cases of employment injuries) in both the pre-existing and new social insurance systems.
After the amendments to the Saudi Labor Law (see previous Lockton alert here (opens a new window)) come into effect, maternity benefits will be paid at 100% of the average contributory monthly wage during the 12 months preceding the date of delivery for a period of three months (increased from 10 weeks), and one month is added if the child is born sick or has a disability. Female employees are entitled to maternity benefits if they have been employed with contribution periods of at least 12 months during the 36 months preceding the date of delivery.
Harmonizing public- and private-sector rules
Previously, social security rules differed between the civil pension system for public-sector Saudi employees and the social insurance system for private-sector Saudi employees. The new system applies to both public- and private-sector Saudi employees, making it easier for Saudi citizens to change jobs between the two sectors.
Lockton Comments
Employers should take steps to review their internal policies, practices and systems, employment agreements, and social insurance pension-related benefits and amend them as needed. Thereafter, a review should be conducted on an annual basis to ensure compliance with the annual increase in contribution rates.
In respect of the new maternity benefits provisions, employers should also note that the calculation of the 12-month contribution period begins from 3 July 2024 and accordingly social insurance-funded maternity compensation would only apply to employees who meet the 12-month requirement on or after 2 July 2025.
Additional information on the new social insurance system can be obtained from GOSI on their Awareness Platform here (opens a new window) and its frequently asked questions webpage here (opens a new window).
General Organization for Social Insurance (gosi.gov.sa) (opens a new window)