Egypt's cabinet has proposed a law to raise the retirement age by five years to 65 and to make other pension changes that the Finance Ministry said would help boost the savings rate and improve growth prospects.   

Analysts said the overall changes would help cut the government's existing pensions deficit.

The draft reform raises the retirement age for those joining the job market from 2012, an official said.

Parliament, dominated by the ruling National Democratic Party, must approve the draft before it becomes law.

"The new pension law will raise Egypt's savings rate from 14 percent to 18 percent of gross domestic product, leading to growth of at least 9 percent," Finance Minister Youssef Boutros-Ghali said, Thursday's Al-Ahram daily reported.

The economy is now growing at about 5 percent a year but was expanding at about 7 percent before the financial crisis.

Beltone Financial analyst Reham ElDesoki said she had yet to see details of the plan but expected it to increase the number of people saving for retirement in the country of 78 million.   

"The new law is expected to have a significant impact on the budget when fully implemented in terms of the savings it will allow the government to make on its payments to cover the current deficit in the pension system," Beltone wrote in a note.

"The implementation of a new pension system, in parallel with the existing system, will also allow better management of the pension funds, with the possible investment of pension funds in the stock market, and grant higher pensions to employees after retirement," Beltone added.

Two-thirds of each individual's pension fund would be invested in government bonds and the rest in other investment funds, Assistant Finance Minister Mohamed Maait told Reuters.

"The new law will guarantee that every penny you put into the fund from day one will go into your final pension," he said. The draft also gives Egyptians covered by the scheme welfare benefits for six months if they lose their job, he said. Monthly payments would decline by 4 percent a month during the period while they were looking for a new job.   

"For the first time, the new law will give insured Egyptian citizens unemployment welfare, being in the range of 60 percent of the last wage received ... My responsibility is to provide a stable income for 6 months," Maait said.   

The employer would make related insurance payments and an employee would be eligible for benefits provided payments were made in the previous 12 months. Employers would be punished by fines or imprisonment for failing to make such payments. - Reuters