Making provident fund membership compulsory for employees has become a central issue in the debate on reforming the pension system. Experts taking part in the 17th Pension Forum stressed the need to expand the second pillar and introduce universal coverage, pointing out that only 27% of private sector employees currently have a provident fund.
According to the speakers, the low participation rate shows the weaknesses of the current model and the need for state intervention, so that future pensioners have a more adequate income. The issue, however, divides the social partners. Trade unions back compulsory participation, while employers’ organisations favour voluntary participation backed by incentives.
First pillar not enough for decent pensions
The President of the Fiscal Council, Andreas Charalambous, argued that the first pillar, the Social Insurance Fund, will not be enough to secure decent pensions in the future.
He said the average pension currently equals around 40% of income, whereas in many European countries the target is between 60% and 70%. In his view, the second pillar must be promoted, either through mandatory participation or through automatic enrolment with the option to opt out.
Call for an independent supervisory authority
University of Cyprus Professor of Finance Andreas Milidonis spoke of the need to set up an independent supervisory authority for provident funds.
He said Cyprus is among the countries with the lowest pension replacement rates, and stressed that without reliable supervision, employees cannot be expected to trust the system. He pointed to Ireland, where participation is mandatory and employees, employers and the state all contribute.
State contributions and gradual payouts
Former Finance Minister Harris Georgiades also supported state intervention, noting that the voluntary approach to provident funds has failed to achieve broad coverage. He proposed a special state contribution for low-income employees, along with incentives for businesses.
The President of the Economy and Competitiveness Council, Dimitris Georgiades, favoured paying provident fund benefits in instalments rather than as a lump sum, so that retirees have a supplementary income throughout retirement.
Employers favour voluntary participation
Employers’ organisations took the opposite view. The Secretary General of the Cyprus Chamber of Commerce and Industry (CCCI), Filokypros Rousounides, argued that provident funds should remain voluntary, with strong incentives, though he said he was open to dialogue.
The Director General of the Employers and Industrialists Federation (OEB), Michael Antoniou, was more categorical. He warned that compulsory participation shifts responsibility for pension adequacy onto employees and businesses, and said OEB would seek to keep the scheme voluntary.
Unions back compulsory participation
On the trade union side, PEO General Secretary Sotiroula Charalambous argued that mandatory participation is a precondition for strengthening retirement incomes, while also calling for incentives for employees.
SEK Deputy General Secretary Panikos Argyrides described the second pillar as an essential element of the reform and called for its framework to be agreed without delay.
