Saudi Arabia: New social security system and changes to maternity leave

Employer Action Code: Act

The amended Social Insurance Law, effective July 3, 2024, establishes a new social security retirement system for new entrants to the labor market and introduces changes for many individuals already employed. The new system applies uniformly to both public and private sector employment — which was not previously the case — thus making it easier for employees to move between sectors. As a result, the benefits landscape for Saudi nationals has shifted. As before, the new system is managed by the General Organization for Social Insurance and applies in full to Saudi employees but not to other expatriate workers (who constitute close to 80% of the private-sector workforce).

Key details

Significant changes under the new system (and notes on how they compare with the preexisting system for private-sector workers) follow:

• For new entrants to the labor market with no previous insured employment:
• Normal retirement age (NRA) is 65 based on the Gregorian calendar (previously, age 60 based on the Islamic Hijri calendar, which equates to around age 58 in the Gregorian calendar).
• Early retirement is possible after 30 years (Gregorian) of insured employment (previously 25, Hijri) and attainment of age 55 (Gregorian; previously there was no minimum age requirement).
• Retirement benefits are calculated as 2.25% (previously 2.50%) of the claimant's average monthly covered earnings over the claimant’s final two years, multiplied by the number of years of insured employment.
• Employer and employee social security retirement contributions will both increase gradually from the current 9% (each) of covered earnings to 11% (with annual increases of 0.5 percentage points starting in 2025).
• For employees who are below age 50 (Hijri) and have less than 20 years of insured employment on July 3, 2024:
• Only NRA and the minimum period of insured employment for early retirement are changed, with NRA increasing by four months per year and early retirement age increasing by 12 months per year from 2025.
• For employees who are age 50 (Hijri) and above or who have at least 20 years of insured employment:
• No changes — the new law does not apply, and previous Social Insurance Law remains in force.
• Maternity leave is extended from 10 weeks to three months, paid by social security (previously paid by the employer), for Saudi and non-Saudi employees, provided the claimant has as least 12 months of insured employment in the 36 months prior to birth.

Employer implications

Younger Saudi employees will have to work longer, and new workers will accrue benefits more slowly while they and their employers will contribute at higher rates than under the old system. According to the General Authority for Statistics, the labor force participation rate for workers age 55 or older was only 28% in early 2024 (40% for males), compared with an average of 67% among OECD countries, while life expectancy at birth in Saudi Arabia (age 78 as of 2022 according to World Bank data) has risen by over 25 years since the old social security system was established in 1969. Only 5% of companies surveyed offer supplemental retirement benefits; 13% enhance mandatory end-of-service benefits (payable to all employees with at least two years of service). Interest in company-provided retirement plans may grow under the new social security system. As companies are no longer required to pay salaries during maternity leave, they may be further encouraged to hire female employees. Reportedly, the government is also considering developing a requirement that employers pre-fund the mandatory end-of-service benefits.