Pension Fund: Billions in Debt and Lack of Transparency in Investments

Special for "SadaNews": The Palestinian Pension Authority is experiencing a strange equation; it is considered the largest creditor to the Palestinian government with debts amounting to approximately $4.5 billion, according to recent statements by Finance Minister Estifan Salameh. This amount stems from a total public debt of around $15 billion, meaning it represents nearly one-third of the total debt. Meanwhile, the fund is engaged in investments valued at about $1.2 billion, amidst accusations of a lack of transparency in managing those investments.

This situation comes amid threats of losing rights for public sector employees due to incomplete transfers of their pension salaries or receiving a lump-sum payment, such as bonuses or mentioned defined contributions, or both amounts, as was the case with 684 military personnel of the rank of brigadier and some officers who were subjected to early retirement according to Law No. (9) of 2025 issued by President Mahmoud Abbas.

Restricted Rights

Observers and experts tell "SadaNews" that a retired employee, whether from the civil or military sector, is supposed to receive their full pension and retirement rights. However, the financial crisis that the government is suffering from and the high value of government debt owed to the pension fund prevent this from being realized. For example, end-of-service bonuses are delayed for long periods and are paid in installments, and a significant portion of public sector employees, both civil and military, do not receive their full pension salaries but rather a percentage that the government typically announces monthly, meaning that retirees are subjected to the same percentage as active employees, which is against the law. This highlights the extent of the overlap concerning transparency about the funds available in the fund from members' contributions on one hand, and the nature of the fund's private investments and their transparency on the other, as well as the reality of successive governments resorting to borrowing from the pension fund, which has financially burdened it and disrupted its primary role, impacting the rights of the members.

"A Foul Smell"
 
Azmi Al-Shaibi, an advisor to the Board of Directors of the Coalition for Integrity and Transparency, stated that the public feels that the Pension Authority's funds are being used outside the interests of their owners, i.e., the contributors. Although the government contributes to the share, this does not mean that this money belongs to the government; rather, the government's role ends with the transfer of funds, and it becomes the property of the beneficiaries.

He added that there are "foul smells" surrounding the Pension Authority, which is why this file is often refused to be opened. Majed Al-Haloo, head of the Pension Authority, previously denied in press statements that the fund is suffering from "bankruptcy," but he did not provide facts about the value of members' available funds in the fund. Furthermore, the Authority's website does not provide accurate figures regarding that.

How Did the Fund’s Debts Accumulate with the Government?

The Pension Fund's debts to the government are accumulated, complex, and intertwined, and their value is a point of significant controversy. However, the government recently acknowledged that the size of the debts owed to the fund has reached about $4.5 billion, resulting from three main paths:

The first is the government's failure to transfer (intermittently) the employee's contribution to the pension fund, which amounts to about 10% (which was paid irregularly and not fully settled).

The second path is the government's contribution to the pension fund, which is 12% of the salary (also paid intermittently and irregularly and not fully settled). The third path consists of funds borrowed by the government a long time ago in several installments from the pension fund in the form of loans that have not been fully repaid.

Investments Lacking Transparency

The Public Pension Law No. 7 of 2005 established the Palestinian Pension Authority as an independent institution administratively and financially, endowed with a separate legal entity, to manage and organize oversight of pension systems in Palestine. The law also organized its dealings with moveable and immovable funds related to its work. The law allowed the Authority to invest and set investment revenues as one of its resources.

According to the Public Pension Law, and as stated in Article 4, the proceeds from investing the Authority's funds are considered one of its resources. Article 65 of the same law organized the investment process by establishing an Investment Committee responsible for developing an investment guide for approval by the Board of Directors, as well as receiving regular reports on investment activities and their results. There is also an Audit Committee responsible for overseeing and monitoring all internal audit operations and receiving an annual report from the internal auditor regarding activities and results. Regarding transparency, Article 80 of the law advises that the annual report of the council must include financial data and accounts for the previous fiscal year, essential results related to investment performance, and the extent to which the performance of the previous and current investment managers aligns with minimum instructions, along with the investment policy for the upcoming year, what the external auditor's report contains regarding the financial situation of the previous year, and what the quarterly reports from both the Audit Committee and the Investment Committee contain, along with data on investment policies, standards, and procedures, an analysis and matching of both assets and liabilities, and information regarding the arrangements of the investment manager and the specific investment portfolios including fees, expenses, and revenues, as well as a signed certificate from the head of the council and the head of the Authority confirming that all investments made during the last year comply with the investment policies, standards, and procedures according to the law, regulations, decisions, and directives, alongside information regarding the size of compensation and benefits disbursed to all council members.

The law explicitly states the importance of maintaining the financial and administrative independence of the Authority. In this context, the law gives a space to manage its investments according to clear and defined professional rules without being subject to any influences from external political parties or centers of power or influence.

A study conducted by the Coalition for Integrity and Transparency (Aman) by researcher Dr. Ibrahim Rabai'ah titled "Transparency in Managing the Investments of the Palestinian Pension Authority's Funds" shows that the size of the investment portfolio reached approximately $1.2 billion. The portfolio consists of local investments (government bonds, shares in national companies, and commercial banks) and limited foreign investments. Local investments include several companies and central banking institutions, including Tamkeen Insurance Company, which the Authority chairs, and several banks in which it has board membership, Pharmacy Company of Jerusalem with board membership, Palestine Electricity Company with board membership, Al-Zaytouna for Islamic Financing with board membership, and Jarzim Mall in Nablus as an investment partner.

The study concluded that there is a crisis in the governance of the investment context in the Authority, as evidenced by the absence of a clear and announced investment policy linked to a precise planning framework that specifies the distribution of assets transparently.

The study indicated the absence of disclosure at the level of mechanisms and administrative behavior, as the Authority does not disclose its investment managers or advisors or the banking institution managing the investments. The Authority also does not disclose any investments made with parties or entities related to the fund or its administration at "their levels." This lack of disclosure also extends to loans or financial facilities granted to or obtained by the fund and their nature of connection with the relevant parties concerning the fund.

The study concluded that there is a lack of mandatory oversight from a higher supervisory institution (e.g., the Office of Financial and Administrative Control), and although the Authority and its investment affairs are subject to the office's oversight, this oversight is not periodic, as the last report from the office was prepared in 2020. Additionally, access to the results of these reports is limited and non-detailed. At the level of the Pension Authority, it does not publish its annual reports and is content with delivering them to the president and prime minister, with limited availability, documenting them in a way that leaves the media exposed without details.

The study pointed out that one of the main causes of the lack of transparency in managing investments is related to the persistent financial crisis of the Pension Authority, connected to the accumulation of pension contributions owed to the Ministry of Finance and the direct transfer of pension salaries – either in full or partially – by the ministry, which has significantly harmed the principle of the Authority’s independence and its projects and programs. The study recommends searching for a transparent mechanism to manage the relationship between the ministry and the Authority.

The study emphasized the need to establish a binding publication policy that implements the relevant Public Pension Law, along with transparency and disclosure standards, and the commitment to publishing annual and quarterly reports and investment reports regularly and on fixed dates according to this policy.

It is worth noting that the head of the Authority had pledged in a session held at "Aman" on 31-3-2017 to publish all of the Authority's reports, including investment reports, on its website periodically, a commitment that has not been implemented since that date.

 SadaNews attempted to contact Dr. Majed Al-Haloo, head of the Pension Authority, for comments on what is mentioned in this report, but he claimed to be traveling and requested to be contacted later. Despite several attempts by "SadaNews" to reach him at different times over consecutive days, Al-Haloo did not respond to all communications, although he was contacted several times regarding this matter. "SadaNews" will publish the Authority's statements and comments if they become available.