Pensions are perhaps the clearest reflection of how the state treats people who have worked and contributed for decades. Today, one fact should shape the entire debate on pension reform in Cyprus: one third of people aged over 65 are at risk of poverty.
This condemns those upon whom today’s prosperity was built to insecurity and indignity. That cannot be considered a success in a modern society.
At the same time, easy populism must be avoided. A pension system must remain sustainable for decades. We cannot promise benefits today that tomorrow’s costs will be borne by today’s young people.
The real choice, therefore, is not between social justice and sustainability. Serious policymaking must deliver both.
This is precisely where, in my view, the current debate falls short. Reducing the actuarial reduction from 12% to 7.5%, along with other adjustments to the basic pension, unquestionably represents an improvement. But it does not amount to reform. Reform means changing the rules where those rules produce injustice.
A dignified standard of living
The first principle of any reform must be that no pensioner should live below a dignified standard of living.
However, tackling poverty in old age cannot and should not fall solely on the Social Insurance Fund. It is primarily the responsibility of the state. It should therefore also be financed through the state budget, via a genuine social pillar that permanently provides targeted income support to low-income pensioners.
There is fiscal space. In 2025, the state recorded a surplus of more than €1.2 billion. This does not mean that every temporary surplus can be converted into permanent expenditure. It does mean, however, that with sound and rational management of public finances, part of the state’s stable revenue can and should support those in genuine need.
A change in mindset is also required. A modern state succeeds only when it uses its resources responsibly, maintains fiscal stability and protects social cohesion, giving equal importance to all three.
A targeted support scheme for low-income pensioners, costing between €90 million and €120 million annually, would be fiscally manageable if properly designed and financed through stable sources. Many such sources exist, provided there is sufficient political will.
Fairness based on years worked
The second principle must be fairness in recognising the length of a person’s working life. Someone who has worked for 45 years cannot be treated in the same way as someone with a much shorter employment history.
We should seriously consider a new fundamental rule: a full pension at 65 or after 45 years of contributions, whichever comes first.
A reasonable minimum age, such as 61, could be introduced to prevent extreme cases. Someone who entered the workforce at 17 and completed 45 years of actual contributions has fulfilled their side of the social contract. It is not socially just to impose a lifelong actuarial reduction simply because they have not yet reached the age of 65.
This principle is neither unprecedented nor extreme. It is applied in several other European countries. The debate should therefore not be confined to the size of the “penalty”. The real question is whether the system fairly recognises a person’s total contribution.
Periods of maternity leave, childcare, care for people with severe disabilities and other socially recognised periods should also be covered by state-funded social insurance credits.
Otherwise, a system that appears neutral ultimately penalises those, often women, who have undertaken unpaid care work for the benefit of society as a whole.
A second pension pillar for all
The third principle must be the creation of a genuine second pension pillar accessible to everyone.
A modern system cannot rely exclusively on the state pension. Every worker should have access to a provident fund or occupational pension scheme, with automatic enrolment and meaningful employer contributions.
Where an employer does not operate such a fund, the second pillar should be supplemented by a low-cost National Supplementary Pension Fund under independent management.
This is particularly important for today’s 25, 35 and 45-year-olds. If reform focuses only on correcting some of today’s injustices but fails to build sufficient savings for pensions in 2040 and 2050, the problem will simply have been transferred to the next generation.
Independent management of reserves
Finally, the Social Insurance Fund’s reserves must be placed under genuinely independent and professional management, with transparency, diversified investments and full accountability.
Workers’ money cannot be treated as an easy means of financing the state. It belongs to workers and future generations and must be managed accordingly.
Pension reform represents a major opportunity for social change. After so many missed opportunities in other areas, Cyprus cannot afford to settle once again for accounting adjustments merely to claim that something has been done.
The country needs reform that can remain socially and economically sustainable for decades.
It needs a new social contract: a dignified pension for everyone, fairness for those who have worked throughout their lives and sustainability for future generations.
A pension is not a benefit. It is the obligation of an organised state towards the people who worked to build its economy and society.
The quality of a modern state is ultimately judged by how it treats those who, after a lifetime of work, are entitled to security, dignity and respect.
Dr Stelios Platis holds a PhD in Finance and Macroeconomics from the University of Cambridge.
