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A rethink has been urged by the government on a proposed amendment to the 2006 Unemployment Insurance Law that would allow the use of unemployment insurance funds to finance annual pension increases.
The call came in a memorandum referred by His Royal Highness Prince Salman bin Hamad Al Khalifa, Crown Prince and Prime Minister, outlining the government’s legal, technical, and financial concerns over the proposed change.
The draft law, submitted by Parliament, seeks to add a new clause to Article (Eight) of the Unemployment Insurance Law, stipulating that the unemployment insurance fund would finance the “scheduled annual increase in pensions” until surpluses are achieved in both the Civil and Military Pension Funds.
While acknowledging Parliament’s intent to enhance retirees’ living standards and ensure regular pension adjustments, the government said the proposal contradicts the core objectives and financial design of the unemployment insurance system.
The memorandum stressed that the unemployment insurance system was established as an independent insurance mechanism to protect workers against temporary job losses, not to fund long-term pension liabilities.
“The unemployment insurance fund is designed to provide short-term income support to individuals who are temporarily out of work, enabling them to meet essential needs until they re-enter the labour market,” the note explained. “Redirecting its resources towards financing permanent pension increases would fundamentally alter its purpose and threaten its sustainability.”
The system, the memorandum added, is based on contributions shared equally between the government, employers, and employees – each paying one per cent of monthly wages – and is intended to sustain temporary benefits through disciplined actuarial management.
Legally, the unemployment insurance fund is a financially and administratively independent account within the Social Insurance Fund, with its revenues reserved exclusively for unemployment-related benefits. Allocating these resources to other purposes would violate the principle of financial allocation and insurance equity, which prohibits transferring funds between unrelated insurance branches.
“Using unemployment insurance funds to cover pension increases effectively transforms it from a temporary insurance tool into a general financing mechanism,” the note stated. “This undermines the rights of contributors whose payments were intended solely for unemployment coverage.”
The government also warned that the proposed amendment lacks the necessary actuarial studies to determine its long-term financial impact.
“The proposed bill “adds a new category of beneficiaries – retirees – who were never covered under the unemployment system, thereby expanding expenditure without expanding revenue sources.”
According to the government, the proposal could lead to financial instability within the Unemployment Insurance Fund, limiting its ability to assist unemployed workers and respond to future crises.
“The existence of a temporary surplus does not justify diverting funds from their intended purpose,” it explained. “Such reserves are precautionary and ensure the system’s ability to respond to economic shocks, as demonstrated during previous downturns.”
The memorandum warned that transferring the cost of pension increases to the unemployment account would create a permanent financial burden without any defined limits or safeguards, potentially resulting in future funding gaps, delayed benefit payments, or reduced eligibility.
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