Labour Minister Marinos Mousiouttas says he remains optimistic about the prospects for Cyprus' pension reform despite ongoing negotiations, unresolved issues and delays in finalising the revised legislation.
Speaking to Politis, Mousiouttas said discussions with social partners have become more constructive following Monday's meeting of the Labour Advisory Body, increasing hopes that the process can be concluded within the government's timetable.
The minister reiterated that the goal remains to submit the bill to parliament during October and stressed that the government intends to proceed with the legislation regardless of whether a final agreement is reached with unions and employer organisations.
Key changes already presented
At Monday's meeting, the Labour Ministry presented three major amendments to the reform package:
- Extension of the transition period from five to 15 years.
- Faster implementation of pension increases, with full adjustments completed within three years instead of five.
- Improved provisions for widow's pensions and invalidity pensions.
Under the revised proposal, the protection mechanism guaranteeing pensioners the higher amount calculated under either the existing or new system will remain in place until 2041. This means no current or new pensioner retiring before then would receive a lower pension as a result of the reform.
The proposal also revises the supplementary pension calculation formula.
During the 2027-2041 transition period:
- The new formula will be applied using a 1.25% coefficient.
- Benefits will be compared with those produced by the existing 1.5% coefficient.
- Pensioners will receive whichever amount is more favourable.
From 1 January 2042, a 1.35% coefficient will apply to all pensioners, replacing the current comparison mechanism.
Faster pension recalculations
The government has also shortened the timetable for recalculating existing pensions.
Instead of the original five-year phase-in, increases would be paid over three years:
- 30% in 2027
- 30% in 2028
- 40% in 2029
The original proposal provided for payments spread across five years.
Unions seek further answers
The Labour Advisory Body meets again today, with social partners expecting additional answers to questions that remained unresolved during earlier discussions.
Trade unions are seeking clarification on:
- The 12% actuarial reduction applied in certain cases.
- Widow's pensions for men whose spouses died before 2018.
- Eligibility criteria and subsidy levels for low-pensioner support schemes.
- Measures ensuring support reflects the actual poverty threshold.
A major demand from organised labour remains the advancement of the second pension pillar, covering provident and occupational pension funds.
Employers raise constitutional and cost concerns
Employer organisations also say significant questions remain unanswered.
The Cyprus Chamber of Commerce and Industry (KEVE) has submitted a memorandum containing 13 observations on the proposed legislation.
Among its requests are:
- A legal opinion on the constitutionality of reducing supplementary pensions.
- Removal of provisions allowing future increases in social insurance contributions.
- Clarification of what it views as unequal treatment between public- and private-sector employees.
KEVE argues that supplementary pensions are linked to contributors' earnings and may constitute property rights protected under the constitution, citing previous Supreme Court rulings.
The chamber also opposes any provision that could permit future contribution increases unless accompanied by raising the retirement age to 67.
Public versus private sector treatment
The chamber further argues that public servants appear to be protected from the effects of changes to supplementary pensions through occupational pension arrangements, with the state effectively guaranteeing benefits under the current 1.5% coefficient.
It is therefore requesting:
- Comparative examples for public- and private-sector workers.
- A legal review of whether different treatment complies with equality principles.
- Cost estimates for any burden placed on public finances.
Dividend taxation and business costs
KEVE also opposes measures that would increase employer costs, including:
- Social insurance contributions on extraordinary payments.
- Extension of contribution obligations until age 67.
The chamber has raised concerns about proposals to treat dividends paid to employees as insurable earnings subject to social insurance contributions up to the annual earnings ceiling, currently €67,500.
It argues that the proposal could disproportionately affect small and family-owned businesses and reduce the benefit of the government's planned reduction of dividend tax from 17% to 5%.
The organisation is also seeking safeguards against double taxation or double charging through Social Insurance and Gesy contributions.
Concerns about future pensions
According to KEVE's actuaries, once the transition period ends, future retirees receiving medium and higher pensions could face reductions of up to 10% under the new calculation system.
The chamber is therefore calling on the Labour Ministry to publish comparative projections over a 20-year period showing pension outcomes under both the current and proposed systems.
Despite its reservations, KEVE indicated that if its recommendations are incorporated into the revised legislation, it believes the government's proposal would move in the right direction.
OEB awaiting revised bill
The pension reform was also discussed by the executive committee of the Employers and Industrialists Federation (OEB).
According to information obtained by Politis, OEB officials reviewed the proposals with the assistance of an actuary and identified a number of issues requiring further clarification. The organisation is now awaiting both additional explanations and the revised draft legislation.
