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Oct 1 , 2022
By RAHEL BOGALE ( FORTUNE STAFF WRITER )

Federal officials revoked a private provident fund regime two weeks ago, decades after it was introduced.

A federal agency for Private Organisation Employees' Social Security Administration, under the central bank's oversight, scraps the funds for private sector employees, limiting them to benefits from pensions. The proclamation governing private employees' pension funds has been amended three times since it was first legislated in 2011. The most recent amendment came last year, creating a platform that permitted employees of the private sector social security benefit and transfers provident funds to pensions.

A provident fund is an investment fund established by the employer and employee to serve as long-term savings, for the latter's retirement.

Private sector employers must provide pensions and submit data on employees who were beneficiaries under the provident fund scheme to the Administration within 60 days. The Administration has hired McKinsey, the US-based consultancy firm, to study gaps in previous pension laws and recommend another amendment.


Girma Sisay, a legal director at the Administration, believes the amendment is essential to fill management gaps.

Officials believe bringing all retirement payment schemes under a consistent and structured social security umbrella is vital. Previous working procedures delegated pension collection to regulators entrusted by the Administration. The upcoming amendment looks to have a regulatory body formed to take on the mandate.


The Ministry of Revenues and regional revenues authorities are the state agencies mandated to collect pension contributions.

A retiree is entitled to monthly pension deposits after 10 years of service in any organisation when the pension amounts to at least 30pc of deposits from the average salary. The pension grows by 1.25pc for each year of service after the first decade. A beneficiary can access retirement pensions at the age of 60.


The most recent amended rules adjusted the revision period for pension rates to every three years, cutting it down from five. The amendment also enabled the Administration's management board to mobilise funds in profitable and reliable investments without the need for approval from officials at the Ministry of Finance. Pension funds were funnelled into public investments through the central bank's treasury bills (T-bills).

Awash Insurance, incorporated in 1995, is among private companies that offer provident fund benefits to its employees. The insurer operates with over 600 staff, but less than a 10th of its employees are beneficiaries of the provident fund scheme.

Its executives observe that provident funds are vital for allowing employees to access finance in times of need. Banks could collaborate with private employers and provide loans to employees, holding provident fund deposits as collateral. However, it is unavailable to save the funds mortgaging the future, said Gudissa Legesse, chief executive officer (CEO) of Awash Insurance.

"Pension funds would help employees secure a better future," Gudissa told Fortune.


Abebe Bulto, 35, worked for three years at Vanguard Technologies Plc, a private company incorporated over two decades ago. An importer of printing and construction machinery, it used to facilitate provident funds to its employees, offering a deposit of 15pc of salaries in blocked accounts. Abebe deposited 10pc of his 8,000 Br a month salary into his provident fund account.

"I received the funds after I resigned," said Abebe.

The fund helped employees like him feel more secure, although Abebe says the funds were vulnerable to manipulation and embezzlement.

Habtamu Hailemeskel, a lawyer and lecturer at the Civil Service University College, believes the government is scrapping provident funds to bloat pension funds (to which it has access) for paying investments in public infrastructure.

"There was also inconsistency in managing the scheme," said Habtamu.


PUBLISHED ON Oct 01,2022 [ VOL 23 , NO 1170]

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