The government said on Tuesday it has no intention of scrapping the so-called ‘penalty’ on pensions imposed on those retiring early at age 63, provoking a tussle in parliament between the labour minister and opposition MPs.

Grilled by lawmakers, Labour Minister Yiannis Panayiotou stated categorically that the government has no plans to do away with the 12 per cent ‘penalty’.

This sparked a verbal back-and-forth with Akel MP Andreas Kafkalias, the chairman of the House labour committee. Kafkalias referred to the current practice as a ‘distortion’, a word which the minister objected to.

The minister said an actuarial study had shown that abolishing the ‘penalty’ was not possible at this time.

During the course of the discussion, Panayiotou also revealed there are no plans currently to alter the pensionable age.

As it stands, the statutory retirement age in Cyprus is 65, but there is also the option for retiring early at 63 with a consequent 12 per cent deduction on the monthly pension – a long-standing point of contention for unions and workers’ groups.

Since 1993 people who had made social insurance contributions for 33 years could retire at 63. The ‘penalty’ of 12 per cent was introduced in 2012 as part of the then-government’s negotiations with international lenders to ensure early retirement would not affect the social insurance fund.

The ‘penalty’ is imposed as an offset, because beneficiaries receive two extra years of pensions compared to those retiring at 65.

The issue resurfaces in political discourse from time to time.

Back in 2022 the administration of Nicos Anastasiades had floated the idea of abolishing the offset once a retiree reaches the age of 81.

According to mathematical formulas, in order that those retiring at 63 ‘lose out’ – in the form of pension payouts – compared to those retiring at the age of 65, they would have to live beyond the age of 81.

At the time, life expectancy in Cyprus for men was calculated at 80.5 years, and at 84.5 years for women.

On a related matter on Tuesday, the labour minister promised the government would by year’s end table legislation regarding reforms to the pension system in general.

The priority, said Panayiotou, is to ensure the adequacy of pensions and improve the viability of the Social Insurance Fund through changes to investment policy – particularly relating to investments made by provident funds as well as private insurance.