Report on the Investments of the Palestinian Pension Authority

·       Second installment

·       Potential dangers from the collapse of the Palestinian Pension Authority… in light of the disappearance of its assets! And one of the causes of that is the Ministry of Finance! The story of the Palestinian Pension Authority and the erosion of its assets is not new, but the annual report of the State Audit and Administrative Control Bureau (SAACB) for 2023 ignited fears of potential risks, of an imminent collapse of this Authority, which pays pensions to government retirees, civilian and military, in light of this Authority’s financial distress!

·        Its domestic investment portfolio is virtually empty, and matters worsened when the Authority liquidated its foreign portfolio to settle the Authority’s domestic obligations, namely the pensions of civilian and military retirees, and this was done in light of the Ministry of Finance’s failure to transfer the amounts due to it annually in favor of the Authority from the government’s share and the employee’s share, for both benefits and contributions…for years past and up to the present date… since the majority of the assets of the Pension Authority’s fund, which are estimated in the billions of shekels, are accumulated debts owed by the Ministry of Finance, as we noted above, and they have not been paid or settled by the Ministry of Finance….rather these balances accumulate under the item of internal debts.. as the Ministry of Finance does not consider the Pension Authority’s debt and its dues to be public debt!...

·       This is what the State Audit and Administrative Control Bureau (SAACB) reports mentioned in many previous years, the latest being the annual report for 2023 – which indicated that such a bleed in the fund has indeed become a threat to the existence of the pension and retirement fund...- Hereafter we set out some of the reasons that the SAACB included in its 2023 annual report that led to the deterioration of the Authority’s fund assets and thereby increased the risks of the Pension Authority’s collapse:

·       Substantial decline in the Pension Authority’s investment portfolio:  A substantial decline in the investment portfolio of the government sector of the Pension Authority as of 30-9-2022 by 27% compared to 2018, due to the Authority resorting to liquidating its investments in order to meet its obligations, most importantly the pensions of government-sector retirees, given the Ministry of Finance’s noncompliance with transferring the amounts due to it annually in favor of the Authority from the government’s share and the employee’s share for both benefits and contributions, noting that the proceeds from liquidating the Authority’s foreign investments were not used for its domestic investment portfolio, but rather most were used to pay the obligations owed by the Authority, which increases the risks to its continued existence. (As stated in the report)

·       Liquidation of the Authority’s foreign investment portfolio: The liquidation of the largest part of the Authority’s foreign investment portfolio, and the concentration of its investments in Palestine, where the Authority’s foreign investments decreased by 71% as of 30-9-2022 compared to 2018, knowing that the Authority’s foreign investments constituted 45% of its total investments at the end of 2018, while they did not exceed 11% of its total investments as of 30-9-2022, which leads to increased risks of geographic concentration of the Authority’s investments..(As stated in the report)

·       Effect of liquidating the Authority’s foreign investment portfolio on local investments: Through the Bureau’s review of the depth of the financial distress suffered by the Pension Authority and its resort to liquidating part of its foreign investments to meet its obligations to retirees, local investments are no longer safe… because the Authority’s liquidation of these investments to meet any urgent obligations in the event that the Ministry of Finance fails to fulfill its obligations to the Authority, and the Authority’s resort to urgently liquidating its local investments, will cause a decline in the prices of companies listed on the financial market due to its small size, since the Authority’s investments in some listed company shares constitute substantial holdings, and if offered for sale, they will cause risks of share price declines and, consequently, the Authority will obtain a low value when selling those shares in the local market!

·       Instructions and policies organizing the investment process: The Authority did not issue instructions, policies, and general controls that regulate the process of investing in companies it owns and assess the risks arising from that.

·       Market value of lands bought or sold: The Authority’s noncompliance with appraising some lands on purchase or sale through three appraisers, in addition to purchasing some land plots at a value higher than the appraisal value, which does not provide assurance about the fairness of the market value of the lands that were bought or sold, and increases the associated risks arising from that. (As stated in the report)

·       Investment plan and budget: The Authority did not establish an annual plan and budget regarding its investments and the expected performance of its investment portfolios, as no annual budget was adopted for the years 2018-2021 reflecting investment orientations and cash and in-kind returns. (As stated in the report).!

·       The Ministry of Finance’s failure to transfer the amounts due to it annually in favor of the Authority from the government’s share and the employee’s share, for both benefits and contributions, for many long years up to the present… led the Palestinian Pension Authority into critical financial distress, which has eroded its assets. This prompted it to liquidate its foreign investments… in addition to other factors explained above regarding the Authority’s investments, especially in land, and the absence of instructions, policies, and investment governance at the Authority, which requires the SAACB to give follow-up on this important file more attention and seriousness and not be content with merely writing observations and recommendations..and that’s enough.!..... Rather, it requires placing the Pension and Retirement Authority’s file before the government and before the presidential circles to spare the Pension Authority from collapse and noncontinuation..!