Increases for all 123,000 pensioners, a reduction in the actuarial deduction for retirement at age 63 from 12% to 7.5% on the basic pension component, and a new contribution obligation of 15.82% for individuals earning income from investments and other non-employment sources form part of the government's pension reform proposal presented on Wednesday by the Ministry of Labour and Social Insurance.
The most substantial increases, reaching as much as 50%, will not be immediate but will be phased in over a five-year period. Social partners reacted cautiously, saying they would study the draft legislation in detail before taking a position.
According to the government, 53,000 pensioners are expected to receive increases of more than €100 per month, while 60,000 pensioners will see increases below €100 per month over the five-year period.
The bill also provides for a minimum guaranteed increase of €30 for existing Social Insurance Fund pensioners receiving pensions of up to €600 per month, payable from the first month of implementation.
Examples of pension increases
According to an explanatory note presented to social partners, increases for future pensioners will range from 2% for very high earners to 50% for lower-income pensioners.
Examples include:
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A low-income pensioner with 15 years of paid contributions and 4 years of credited contributions, for a total of 19 years in the Social Insurance Fund, currently receives €411. Under the reform, the pension would rise to €577, an increase of 40%.
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A low-income pensioner with 35 years of paid contributions and 7 credited years, for a total of 42 years, currently receives €436. Under the reform, the pension would increase by 50% to €702.
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A pensioner with low-to-middle income and 49 years of participation in the system, including 21 units in the supplementary component, currently receives €762. The pension would rise by 28% to €976.
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A very high-income pensioner with 49 years of participation, including 168 supplementary insurance units, currently receives €2,540. The pension would increase to €2,580, a rise of just 2%.
New social insurance system
The proposed system introduces a redesigned basic pension, calculated according to total registered insurance periods, including both paid and state-credited contributions.
The reform aims to strengthen protection for lower-income individuals, those with limited contribution records and persons whose insurance history has been interrupted by childcare, disability, studies or transition into the labour market.
The redesigned basic pension will replace the current basic Social Insurance Fund pension, while the supplementary pension will remain earnings-related but will be adjusted under the new framework.
All persons registered in the new social insurance system who meet minimum insurance requirements will qualify for the revised basic pension.
Funding the basic pension
The new basic pension will be financed through:
- Employee and employer contributions.
- Contributions from persons not engaged in gainful employment where inactivity is not covered by credited contributions.
- State funding for credited contribution periods.
The monthly amount of the redesigned basic old-age pension will be calculated using a coefficient ranging from 1.1 at age 63 to 1.5 at age 67, increasing by 0.1 per year between ages 64 and 66.
The retirement age remains 65. Individuals who continue working until 67 will be entitled to higher pensions, provided contributions continue to be paid.
Supplementary pension changes
For existing pensioners, authorities will compare pensions calculated under the current system with those produced under the reform.
A 1.25% return factor will initially apply to the supplementary pension. If the reformed pension is lower than the existing entitlement, pensioners will continue receiving the higher amount.
For new pensioners retiring during the 2027-2031 transition period, the same comparison mechanism will apply.
If the new pension is lower than under the current system, the supplementary pension will be recalculated using a 1.34% return factor.
From 2032 onwards, the 1.34% rate will apply to all new pensioners, with scope for future contribution increases depending on actuarial findings.
The reform also revises benefits for disability, widowhood and orphanhood, as well as related dependent allowances.
New contributions for income earners
The proposal broadens coverage and introduces a new contribution obligation for individuals earning income outside traditional employment.
Citizens and legal residents who are not otherwise covered by social insurance would pay 15.82% of annual income, up to the annual ceiling of basic insurable earnings.
Relevant income includes:
- Dividends
- Interest
- Rental income
- Royalties
- Income from office-holding
- Other property-related gains
For employees who are shareholders in the company where they work, dividends received from that company would also be included in earnings calculations.
Reduction in the 12% retirement penalty
The government proposes easing the actuarial reduction applied to retirement at age 63.
Rather than abolishing the reduction entirely, officials argue that doing so would undermine the long-term sustainability of the Social Insurance Fund.
The proposal would reduce the current 12% deduction to 7.5% on the basic pension component for existing pensioners and those retiring before the end of the transition period in 2031.
The reduction would apply for life.
Social pension arrangements
Current recipients of the social pension will be transferred to the Social Insurance Fund as a special category of beneficiaries.
Individuals retiring during the 2027-2031 transition period who do not qualify for an old-age pension under the new rules may still be assessed under the existing social-pension criteria.
The eligibility transition period would also be extended from five to 15 years.
The state will pay contributions on behalf of future social-pension beneficiaries who cannot afford to contribute, a group estimated at 25%-30% of potential beneficiaries.
Funding and sustainability
The reform includes changes to the financing structure of the Social Insurance Fund.
Future annual surpluses will be invested rather than lent to the state, while arrangements have been made for gradual repayment of existing government debt owed to the fund.
State actuary Costas Stavrakis said the reform safeguards long-term sustainability but will have fiscal costs in the short, medium and long term.
He estimated a burden of approximately €50 million annually during the first five years.
Social partners remain cautious
Labour and employer organisations stressed that they need more time to examine the proposals.
Representatives of KEVE, OEB, PEO, SEK and DEOK all highlighted the complexity of the reform and the need for detailed analysis before taking final positions.
While they generally welcomed efforts to improve pension adequacy and sustainability, concerns remain over issues such as the treatment of the 12% actuarial deduction, the second pension pillar involving provident funds, financing arrangements and the long-term economic impact.
Discussions will continue on 28 August, with further presentations and clarifications expected before organisations submit their formal positions in September.
