Mandatory participation in provident funds is a red line for Cyprus' employers, who are reiterating their support for a voluntary approach as discussions continue over reforms aimed at strengthening the country's second pension pillar.
The issue has resurfaced following a proposal submitted to the Ministry of Labour by University of Cyprus finance professor Andreas Milidonis, advocating the automatic enrolment of employees into provident funds.
Business organisations OEB and KEVE have reaffirmed their opposition to any form of compulsory participation.
“A cause for war”
Michalis Antoniou, Director General of the Employers and Industrialists Federation (OEB), described mandatory provident fund participation as a "cause for war." "Our position is clear. Provident funds were established through agreements between OEB and the trade unions and have operated on a voluntary basis for 65 years, gradually expanding to cover more employees," he said.
Antoniou stressed that employers support a voluntary expansion of provident funds, provided the state introduces meaningful incentives for both employers and employees.
Similarly, Philokypros Rousounides, Secretary General of the Cyprus Chamber of Commerce and Industry (KEVE), said the voluntary nature of provident funds should be preserved.
He argued that stronger incentives should be offered to encourage wider adoption among employers rather than imposing compulsory participation.
The employers' position contrasts sharply with that of the trade unions, which favour universal coverage to improve income adequacy during retirement.
What the proposal suggests
Milidonis' proposal, inspired by the work of Nobel Prize-winning economist Richard Thaler, would see every new employee automatically enrolled in a provident fund upon starting employment, while retaining the right to opt out if they choose.
According to the professor, the United Kingdom's automatic enrolment system, introduced in 2012, provides a successful model.
He notes that participation among private-sector employees in occupational pension schemes increased from 42% in 2012 to 86% in 2022 following the reform.
The proposal also calls for employers to contribute an amount matching employee contributions, initially reaching between 3% and 5% of gross salary over time.
Milidonis argues that benefits already provided to Cypriot companies through the tax reform that came into force on 1 January 2026 help offset the cost of such contributions.
One example, he says, is the reduction in dividend taxation for individuals.
He also proposes state support for retirement savings through a refundable income tax credit equal to 50% of employee contributions, up to a maximum of around €1,000 annually per beneficiary.
Push for agreement
On 9 July, Labour and Social Insurance Minister Marinos Mousiouttas and SEK Secretary General Andreas Matsas expressed support for incorporating an agreement on the second pillar of pension reform into legislation expected to be submitted to parliament in September.
Following a meeting yesterday with representatives of DIPA, EDEK and the Ecologists-Citizens' Cooperation Movement, Mousiouttas said the draft text is expected to be circulated to social partners and political parties by the end of July.
Meanwhile, DISY has also publicly called for a comprehensive overhaul of the pension system.
