The ambitious pension reform and its promises of substantial pension increases risk turning into a "fake reform" unless the state makes a significant financial contribution and secures how the improvements will actually be funded, with concerns among social partners intensifying and multiplying.
According to the trade unions' assessment, the government is attempting to change the pension system mainly by redistributing existing benefits, shifting the burden onto the Social Insurance Fund (TKA), without dipping deep into its own pocket. Employer associations are also seriously concerned about how the proposed improvements will be funded, with a particular focus on the system's long-term sustainability, and are awaiting detailed figures. The Cyprus Chamber of Commerce and Industry (KEVE) warns of a risk of pension cuts after the transitional period ends in 2031.
The tangle grows more complicated
The presentation of financial data at Thursday's meeting of the Labour Advisory Board further complicated matters rather than clarifying them, with social partners still awaiting more detailed figures on the real cost to the state from pension and other benefit increases. They argue the total cost should also include what it will cost once the state stops borrowing from the Social Insurance Fund and turns instead to the markets, paying a higher interest rate.
According to tables for the 2027-2032 period published yesterday by Politis, the cost to the state from the pension reform stands at €486.6 million, and to the Social Insurance Fund at €334.2 million.
In 2027, the state will actually see savings of €19.2 million from the pension reform. In 2028, the cost will rise to €14.6 million, increasing gradually in subsequent years to reach €190.7 million by 2032.
The cost to the state does not represent pension spending itself, but the cost of the state's increased financing needs as a result of ending its "borrowing" from the Social Insurance Fund.
As for the Social Insurance Fund, its cost will rise to €57.2 million in 2027, reaching €81.9 million in 2028, before decreasing from 2029 onward, falling to €18.8 million by 2032.
The Fund's estimates include assumptions of additional interest income expected from new investments worth €581 million over 2028-2032. However, there is uncertainty both over when these investments will actually begin, and therefore when the related income will materialise, and over the level of returns ultimately achieved, since these depend on market conditions and the investment strategy adopted.
The real comparison
Unions expect to be given figures showing how much the state would have paid in coming years had the pension reform not gone ahead, in order to reveal its real contribution.
"The real comparison that needs to be made is what the state would have paid in the coming years if the pension reform did not exist," SEK Secretary-General Andreas Matsas told Politis, stressing that the government's proposal remains incomplete and that a detailed presentation is still awaited.
"It is clear that, from the pension increases and the 12% actuarial reduction, the state will not be putting in additional money, but rather redistributing existing resources from the Social Insurance Fund," PEO Secretary-General Sotiroula Charalambous told Politis.
DEOK president Stelios Christodoulou noted that "the tables given by the government are fairly complex, as they contain many parameters, and we have requested more detailed data and examples on the pensions paid under the current system, and how much people would receive in coming years if the reform did not exist." "Patience with a reform that represents our most important social achievement is our best ally. We need time to be sure that what we want to improve for the future doesn't end up harming any pensioner," Christodoulou stressed.
Employers' concerns
Employer associations have also expressed concern over how the reform will be financed, placing particular emphasis on the pension system's long-term sustainability in light of the proposed changes.
OEB assistant director general Lena Panayiotou told Politis that all the financial data has been passed to the Federation's experts for further analysis, acknowledging that several concerns remain. It is important, she stressed, that the article-by-article discussion has now begun at the Social Insurance Council.
KEVE deputy secretary-general Emilios Michael noted that "no income can be expected from the Social Insurance Fund's investment policy unless the independent organisation is first established and the mechanisms put in place, something that will take two to three years, as Finance Minister Makis Keravnos told us at the Labour Advisory Board meeting." This, he argued, diverges from the estimates of actuary Costas Stavrakis.
According to KEVE's own actuaries, he added, there is a possibility that after the transitional period ends in 2031, if income proves insufficient, pension cuts could occur for certain categories of pensioners with medium and high incomes.
It is worth noting that the article-by-article discussion of the pension reform bill began on Friday at the Social Insurance Council, while a new meeting of the Labour Advisory Board is scheduled for Monday.
