The government is moving forward with plans to increase benefits for low-pensioners through a major reform of the first pillar of Cyprus’ pension system, which is managed by the Social Insurance Fund (SIF).
According to an internal note obtained by “Politis”, the reform aims to create a simpler and fairer social insurance pension system. The proposal emphasises targeted income redistribution and a more rational role for the state in funding the system.
Current challenges
The note highlights key issues with the existing system. Cyprus’ pension scheme does not fully protect retirees from poverty, fails to guarantee adequate pension income for all, and does not effectively address gender disparities. Additionally, the state’s contribution to the system is currently complex and inefficient.
Labor Minister Yiannis Panagiotou outlined the reform’s direction at the 16th Pension Forum of AON. He said the focus is on increasing the income of low-pensioners and promoting inclusivity, with women gaining more pension rights in recognition of their multiple roles in society and the labor market. Technical work is already underway, and the minister expects the relevant bills to be approved by the Council of Ministers within 2025.
A new structure
The SIF pension will keep its two components, fixed and proportional, but with a new calculation method:
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The basic pension will increase.
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The proportional pension will provide additional income for low-pensioners, funded by small reductions for high-pension recipients.
The aim is to offer a dignified pension, reduce the risk of poverty, narrow the gender pension gap, and redistribute income fairly, ensuring solidarity across generations.
Revised Basic Pension
Under the new system, the basic pension will be a fixed amount per year of insurance, covering both paid and state-subsidized contributions. This redesigned pension replaces the current minimum SIF pension and will provide greater redistribution, particularly for those with subsidized insurance years.
All registered members who meet minimum insurance requirements will qualify. Funding will come from:
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Employee and employer contributions
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Contributions from non-working individuals not covered by state subsidies
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State subsidies and transfers for those legitimately outside the labor market
The supplementary (proportional) SIF pension will remain contributory, funded by employee and employer contributions, but its calculation will be adjusted to benefit low-pensioners more.
The low-pension allowance will also be redesigned based on income criteria, ensuring a stronger and more effective safety net for retirees. Transitional arrangements will apply for both current and future pensioners.
Complementary reforms
Additional measures include:
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Revising the SIF’s investment policy and creating a new governance framework for its funds
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Strengthening the second pillar of the pension system
The Ministry of Labor has commissioned the International Labour Organization (ILO) to study Cyprus’ pension reform. A technical committee has also been established to guide social dialogue and policy decisions.
Key benefits
The proposed reform is expected to deliver:
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Expanded coverage for all eligible SIF beneficiaries through the revised basic pension
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A guaranteed minimum pension income
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Greater redistribution favoring low-income retirees, reducing poverty risk
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Incentives for workers to continue contributing, as additional contributions increase pension benefits
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A narrower gender pension gap, thanks to a more generous and redistributive basic pension
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Streamlined state funding focused on the revised basic pension
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Stronger governance and better protection of pension rights, ensuring fairness across generations
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Improved pension adequacy, with the combined revised basic and supplementary pension providing a solid replacement of working income upon retirement.