Every single one of the Republic of Cyprus’ 123,000 pensioners will receive an increase in the amount paid to them as a result of the government’s planned pension reforms, Labour Minister Marinos Mousiouttas said on Wednesday as he outlined the current state of plans to stakeholders.

“Of the 123,000 old-age pensioners around today, all are positively affected,” he said, before adding that around 50,000 pensioners will receive an increase in excess of €100 per month, while future pensioners who earned low salaries during their working life may receive increases of up to 60 per cent compared to the current system.

Additionally, he declared that pension payment penalty for those who retire at 63 and claim a state pension before the standard retirement age of 65 years old will fall from 12 per cent to 7.5 per cent, meaning that those who take their state pension early will now receive 92.5 per cent of the amount.

He said that the reform will “mean immediate income support for thousands of families at a time when the cost of living is putting more pressure on the elderly and houses with lower incomes”.

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“The most important social choice of the reform is to give the greatest support to [those on] the lowest pensions,” he added.

Despite these increases, he said that the retirement age and employees’ social insurance contributions will not increase.

“This reform has three key words: fairness, adequacy, and sustainability. Fairness because it supports those most in need, adequacy because it truly increases retirement income, and sustainability because it protects the [social insurance] fund for future generations,” he said.

FURTHER DISCUSSIONS

He said that the matter will next be discussed at the labour advisory board meeting on Friday next week and insisted that the government still aims for the reform to be fully implemented by the end of this year.

At that point, he said, the government hopes for there to be “a framework agreement regarding the provident fund”, and to “resolve any differences which exist so that we end this effort not for our benefit, but for the benefit of the people who really need it”.

State actuary Costas Stavrakis, meanwhile, said that the planned reforms will cost the taxpayer €50 million per year for the first five years, before saying that the state will no longer borrow from the social insurance fund in accordance with the plans, and that “this is a huge commitment”.

Asked when the €12 billion which has already been borrowed from the social insurance fund by the state will be repaid, he said that “based on certain scenarios, it is estimated that it will be done in 40 years”.

 “In order to return this money to the social insurance fund, the state will have to resort to borrowing from the markets, and therefore pay some interest rates,” Mousiouttas said.

He added that in the money available to the social insurance fund, “a real reserve is being created, which will be invested”.

SOCIAL INSURANCE FUND

“The resources of this reserve, the main resources, are the future surpluses. 100 per cent will go to this investment account and gradually, with the repayments, they will also go to this investment account,” he said.

These investments, he said, will be made in real estate and hydrocarbons, as well as in “bonds and shares”.

Stavrakis was then asked how the state plans to pay for the immediate increases in pensions foreseen by the government’s plans, and said that “the role of the state in financing the fund is changing, it is coming to support all these [people] through subsidised contributions”.

Then asked about state pensions available to those who do not work but instead live off the income they earn from rental properties, he said that “based on the current system, a person who does not contribute will be eligible for a social pension, regardless of whether they had the ability to contribute”.

“Pensions have been paid without targeting, to date. With this reform, we are integrating the pension into the system. We expect that this person, based on the legislation, will contribute to the extent which will ensure him the basic pension which has been increased by 50 per cent,” he said.

“This is the philosophy, instead of giving it to everyone regardless, this benefit will be given in a targeted manner, but it must be through the system.”

Mousiouttas was also asked about the 12 per cent “penalty”, which is now set to be reduced to 7.5 per cent, on the pensions payable to those who retire early, and stressed that he is “against the abolition of the penalty”.

12 PER CENT PENALTY

“The 12 per cent was implemented in 2012 during the economic crisis to make the social insurance fund sustainable, and this rule still applies today. However, because conditions are better than they were then, there is now a proposal to reduce the adjustment to 7.5 per cent,” he said.

He added that were the adjustment to be abolished entirely, “the retirement age would automatically drop from 65 to 63 years old”.

Cyprus chamber of commerce and industry (Keve) secretary-general Philokypros Rousounides said that employers will work to “be constructive and substantial” with the aim of “reaching an outcome within this timeframe which … maintains the viability of the [social insurance] fund, which is the utmost need for us”.

However, he said, this would depend on “the explanations we will receive” at next week’s labour advisory board meeting.

“We hope that the various questions which have been created from the beginning will not exist afterwards and that we will be able to put forward our suggestions regarding the proposed reform,” he said.

Employers’ and industrialists’ federation (OEV) director-general Michalis Antoniou said that people “must be patient” with regard to the results of the discussion on the reform, before stressing that “the issue began today in a very constructive climate”.

“This is not easy, it is not simple, but there is a component which creates well-founded optimism. We all seek to achieve convergences, to find an agreed text,” he said.

Trade union PEO leader Sotiroula Charalambous said that the reform “must effectively address the fact that we have a high percentage of pensioners with incomes below the poverty line”.

“The reform must also concern future pensioners, who must have a pension system,” she said.

She, too, called for patience, saying that “expectations have been created for large, one-off increases in pensions”, but that “we are still in the discussion stage”.

Fellow trade union SEK leader Andreas Matsas said that there are “open issues which must be resolved”, in relation to the 12 per cent adjustment. He said that at present, “the trade union movement is not positive” regarding the government’s plans on this particular matter.