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Welcome, 77 artists, 40 different points of Attica welcomes you by singing Erotokritos an epic romance written at 1713 by Vitsentzos Kornaros

Sunday, June 16, 2013

Cyprus: sifting through reform options



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Pensions in Cyprus have been suffering a time of uncertainly, like their neighbours Greece, this part of southern Europe is  enduring a protracted bloody nose following the financial crises. 

The fall out has not been quite as destructive as Greece in terms of pensions, but has still provoked street protests a seen in Athens. Employees at the failed Laiki Bank, and the Banks of Cyprus have called for brief strikes over concerns about their pension funds, this is with the support of their union ETYK. 

In April there were suggestions that pensions for civil servants could go unpaid, as the government was simply running out of money. 

Cyprus was brought to its knees due to investing in Greece, and holding a significant amount of Greek government bonds, partly due to the deep historical ties that exist between the two countries. 

After the value of Greek government bonds was halved in the ‘haircut’ deal of last year, there became a gigantic black hole in the Cypriot finances. This was inordinately damaging as the size of the banking sector, according to World Bank, accounted for eight times the output of Cypriot GDP, leaving the country’s finances in a perilous state. 

In response, an agreement between the Cypriot government and the ‘troika’ of the European Commission, the European Central Bank and the IMF, produced an economic adjustment programme, that begins this year and will be in place until 2016.

The package includes loans of up to €10 billion, with €1 billion arriving from the IMF, this will be in return for addressing the banking crises, action to continue fiscal consolidation, and structural reforms to support a more competitive economy. 

These measures will assist a pension system that comprises of three main pillars, the General Social Insurance Scheme(GISS), that is joined by the Social Pension scheme, and occupational pension plans. 

The GISS is the public compulsory earnings related scheme, that covers every employee in Cyprus, including the public sector and the self employed; and also covers other benefits such as unemployment, employment injury, and invalidity benefits. It became an earnings related system since reforms in 1980, which replaced the previous flat rate pension structure. 

For those who did not participate in the public pension system through the labour market, the Social Pension Scheme provides a means tested benefit to pensioners who are 65 years of age and over, where the principle is to ensure a universality in pension payments. 

The occupational pensions are in place to supplement the GISS, and its estimated by the Ministry of Labour in Cyprus that currently the participation rate is 45% of employees. 

In the public sector the Government Employees Pension Scheme delivers pensions for civil servants, members of the educational service, the police and the armed forces. Although as the financial crises began to deepen in Cyprus, the scheme was closed off to all newcomers into these professions from 2011. 

As part of a sometimes complicated mosaic of pension options, there is the ‘semi government’ fund option, that covers employees of semi-state utility organizations, local governments and of other public law authorities.  They  operate under the same terms as those for civil servants, and for central government employees. 

They are financed by the employer and the employee, and are calculated on what is termed a ‘balanced cost basis’. 

Fund arrangements for occupational pensions in the private sector are incentive based through the tax system , by exemption on contributions and from lump sum benefits. 

The framework of occupational funds is based on defined contribution, financed from employers and employees; and is administered from collective bargaining whether this be from a single employer, or industry sector wide basis. 

Retirement ages are 65 for men and for women, although a pension can be drawn two years prior to the statutory age, but this comes a penalty through an actuarial reduction. 

The pension reduction rate if taken at 63 is 3% for this year, but this will increase by 3% per year up to 2016, where the actuarial reduction of pensions will reach 12%, leaving the incentive to stay in the labour market for longer. 

Every five years there will be a review of retirement ages and whether to raise the ceiling on them, in correlation to the changes in life expectancy rates. The Ministry of Labour say that this process will begin between 2018 and 2023. 

To ensure that the Cypriot pension system remains stable for the future, a number of measures have been taken: including raising the age of taking a reduced pension up to 65, increasing the contribution to the GISS by 1%, and the freezing of pensions under the Social Security Fund over the next three years, in line with the economic adjustment programme. 

For public sector workers, retirement ages will increase by two years, and the introduction of a penalty of 0.5% per month of early retirement. 

A ministry of labour spokesperson reflected that all the measures are, “expected  to significantly decrease the public pension expenditure in the long-run. In addition, an actuarial study for the GSIS will be carried out by end of July 2013 to provide additional reform options, if needed, to ensure the long-run viability of the national pension system.” 

“The study will analyse the impact of additional reform options such as benefit reductions, an increase in the statutory retirement age, and increases in contribution rates or combinations thereof taking into account the impact on labour costs.” 

With unemployment figures reaching 15.6%, the fourth worst in the EU according to Eurostat, and economic growth worsening by 0.7% to -4.1% for the first quarter of this year, the conditions for an improvement in the pension system are hardly advantageous. It’s a situation that Cyprus will have to begin to improve by cleaning up its own balance sheets. 


 







READ THE ORIGINAL POST AT www.neurope.eu