A study by the International Labour Organization (ILO), presented by “P”, provides for a “haircut” of between 2% and 5% in the pensions of so-called high-earning private-sector retirees.
A “haircut” of between 2% and 5% in the pensions of “so-called” high-earning private-sector retirees, calculated at €29 to €133, is provided for in the initial government planning for the first pension pillar.
High-income groups are disproportionately affected by the reform aimed at increasing low pensions, leaving open the possibility of under-declaration of income. At the same time, the pensions of high-earning public-sector retirees, which are higher compared to those of the private sector, are not expected to be affected, as the changes concern only the pensions they receive from the Social Insurance Fund (SIF), which are expected to increase.
The scenarios
According to a relevant presentation of an ILO study to the ad-hoc technical committee on pension system reform, which “P” presents today, net reductions of between 2% and 5% are expected in pensions for employees with earnings of €4,000–€5,000. The negative changes in pensions arise from the reduction of the accrual rate for the supplementary part of the pension from 1.5% to 1.25%.
Based on the current system, one scenario included in the presentation states that the pension for a high-earning person who retires with 34 years of paid contributions and seven years of credited contributions, with 41 insurance units in the basic component and 102 in the supplementary component, is €1,758 (€425 basic pension, €1,332 supplementary). With the full implementation of the reform, this person would receive €1,729 (€640 basic pension, €1,089 supplementary), a reduction of 2%.
Based on another scenario included, the pension for a high-earning person who retires with 42 years of paid contributions and seven years of credited contributions, with 49 insurance units in the basic component and 126 in the supplementary component, is €2,152 (€512 basic pension, €1,640 supplementary). With the full implementation of the reform, this person would receive €2,110 (€764 basic pension, €1,345 supplementary), a reduction of 2%.
In addition, the pension for a person with significant income who retires with 34 years of paid contributions and seven years of credited contributions, with 41 insurance units in the basic component and 136 in the supplementary component, is €2,193 (€425 basic pension, €1,768 supplementary). With the full implementation of the reform, this person would receive €2,092 (€640 basic pension, €1,452 supplementary), a reduction of 5%.
Another scenario states that the pension for a person with significant income who retires with 42 years of paid contributions and seven years of credited contributions, with 49 insurance units in the basic component and 168 in the supplementary component, is €2,691 (€512 basic pension, €2,178 supplementary). With the full implementation of the reform, this person would receive €2,558 (€764 basic pension, €1,794 supplementary), a reduction of 5%.
According to figures from the Statistical Service, in 2024 the total number of actively employed persons in the Cypriot economy earning more than €4,000 per month was 12.3%, or 61,425 employees.
According to the provisions of the government’s planning, those who chose early retirement at age 63 from 2012 and those who will choose it up to 2031 will receive a free credit of nine months on the basic component, so that the penalty is reduced from 12% to 7.5%. For incomes of €4,000 and above, however, the effect remains negative.
According to the ILO examples, even after the reduction of the penalty, these insured persons show net reductions of 2%–5% in the total pension.
The state contribution is removed
It is noted that based on the government’s planning, which has triggered strong reactions because, as argued, it abolishes decades of tripartite cooperation, only employers and employees will contribute to the supplementary part of the pension, with the state contribution being removed.
The withdrawal of the state from financing the supplementary part of the pension raises questions as to how future sustainability challenges of the Social Insurance Fund will be covered.
According to the planning, new contributions are introduced for the redesigned basic pension for the non-employed, partly funded by the state.
At the same time, it provides for a transfer of state contributions from the redefined supplementary pension to the redesigned basic pension, and a transfer of employer/employee contributions from the redesigned basic pension to the redefined supplementary pension.
Specifically, under the current situation, the contribution of employers and employees to the basic/redesigned basic pension is 9.89% and that of the state 2.93%. As regards the supplementary pension, the contribution of employers and employees is 5.94% and that of the state 1.75%.
Under the proposed reform, the contribution of employers, employees, income earners and the self-employed to the basic/redesigned basic pension will be 7.91%, while there will also be a 7.91% state subsidy for the non-employed. The state contribution to the basic pension will increase to 4.68%.
As regards the supplementary pension, the share will be borne only by employees and employers and will amount to 7.91%, with the state contribution being withdrawn.
Scope for adjustments
Labour Minister Marinos Mousiouttas, asked to comment on the scenarios included in the planning and the reductions envisaged, told “P” that, following discussions to be held within the framework of sessions of the Labour Advisory Board, the questions and concerns of the social partners and their suggestions, the final proposal for approval will be shaped.
“Possibly some elements may change, either upwards or downwards,” he notes.
Asked about the issue of Provident Funds, he says they cannot be advanced at this stage, “it is humanly impossible,” he notes, stressing however that, in order to allay concerns, at some point guidelines and the implementation roadmap will be provided.
What is being pursued, he says, is the submission of the bills for the first pension pillar in June so that the reform is implemented in 2027.
The social partners comment negatively on advancing only the first pension pillar, arguing that the second pillar must be advanced simultaneously in order for an adequate pension income to result.
According to calculations, about 70% of employees do not participate in any supplementary pension scheme of a Provident Fund.
Meeting
The issue of pension reform is one of the issues to be placed today before the session of the Labour Advisory Board.
As the ministry announced, the agenda includes the issues of pension reform, the bill on the adequacy of minimum wages, the plan for overdue debts to the Social Insurance Fund, and the transposition into national law of Directive (EU) 2023/970 to strengthen the application of the principle of equal pay between men and women.
If you want, I can also convert this into a PTTP-ready English article with your full formatting rules (headline/subheading/intro/internal titles), but I’ve kept this one as a direct translation “as it is”, exactly as requested.