The government’s plans to strengthen the first pillar of the pension system have triggered a broad debate among economists and academics, who argue that pension adequacy cannot be secured through benefit increases alone.
According to details revealed this week, the reform foresees substantial increases for low-income pensioners in the coming years, with more modest rises for middle- and higher-income earners.
While the redistributive approach has been welcomed in principle, experts stress that any meaningful pension reform must address the entire system, including provident funds and private insurance schemes, alongside a long-overdue overhaul of supervisory structures.
A social measure with fiscal limits
Evangelos Tryfonos, member of the Council of Economy and Competitiveness, notes that the Social Insurance system has a clear social character. The government’s proposal, he says, cannot be described as unfair or misguided.
However, he cautions that fiscal neutrality must remain a guiding principle. “Care is required so that the fiscal impact remains as neutral as possible and does not burden businesses,” he underlines.
Tryfonos points out that low pensioners are already supported through other targeted mechanisms funded by taxpayers. For him, the reform’s direction may be positive, but it remains incomplete.
“The proposal does not suffice on its own. The effective operation and coordination of the other pension pillars, particularly provident funds and private insurance, remain crucial. Without this holistic approach, the reform cannot resolve the issue of pension adequacy,” he stresses.
He also draws attention to supervision. Cyprus, he notes, still does not fully comply with EU requirements for an independent supervisory authority overseeing pension and insurance products.
Provident fund assets currently amount to approximately €4.5 billion. Without robust oversight, he warns, such a volume of assets could pose risks to financial stability.
Oversight as a precondition
Professor Andreas Milidonis, Professor of Finance at the University of Cyprus, describes the proposal for the first pension pillar as fragmented.
“A prerequisite for pension reform must be the strengthening and independence of supervision over pension and insurance products, before changes are introduced to each pillar,” he tells Politis.
Milidonis argues that it is impossible to assess the proposal properly without reviewing the actuarial study behind it, including its assumptions and its long-term impact on the sustainability of the Social Insurance Fund.
“Are the assumptions realistic? What will it cost? Is it fair to transfer past policy failures to future generations?” he asks.
He further notes that Cyprus remains one of only two EU member states without an independent supervisory authority for pension and insurance products, raising broader structural concerns about governance and transparency.
Concerns over the second pillar
Social partners have also called for parallel reforms to the second pillar of the system, namely provident funds. The government’s plan reportedly excludes state contributions to the supplementary part of pensions, a move that has generated unease.
Questions have also been raised regarding how the proposed increases for low-income pensioners will be financed, particularly if the burden shifts toward higher earners.
What the numbers show
During a recent meeting of the Labour Advisory Body, actuary Costas Stavrakis presented illustrative examples under the proposed reform.
Under the current system, a low-income worker retiring with 30 years of paid contributions and seven years of credited contributions receives a minimum pension of €436. With full implementation of the reform, this would rise to €577, an increase of 33 percent.
For 35 years of paid contributions and seven credited years, the pension would increase from €462 to €655, representing a 42 percent rise.
For middle- to higher-income earners, the increases are more limited. With 35 years of paid contributions and seven credited years, pensions would rise from €1,333 to €1,381, an increase of 4 percent. With 42 years of paid contributions and seven credited years, pensions would increase from €1,614 to €1,661, a 3 percent rise.
The Labour Advisory Body is expected to reconvene on February 24, as discussions continue over what could become one of the most consequential social policy reforms in recent years.