Social partners are raising questions with the Ministry of Labor and seeking clarification on the pension reform, following the presentation of the preliminary draft bill on Wednesday. Speaking to KYPE, representatives of the social partners pointed out the initial gaps they have identified in what has been presented so far, while emphasizing, however, the positive willingness to find common ground within the established timeframe.

Both employers’ organizations and workers’ organizations stated that this is a complex bill, which they are reviewing internally in order to formulate their positions and request the necessary clarifications.

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The Cost of the Reform and the Fund’s Sustainability

Employers’ organizations told CNA that they are still awaiting clarification on how the cost of the reform will be covered, emphasizing the need to safeguard the Fund’s sustainability and public finances.

The Secretary General of the Cyprus Chamber of Commerce and Industry (KEVE), Philokypros Rousounidis, told CNA that yesterday’s meeting was very constructive. “Some initial views were exchanged. However, several questions and concerns arose. We will need further clarification in the coming days,” he said, noting that the timeframe is tight.

“With the utmost sense of responsibility that the country’s Chamber of Commerce bears, and while listening to the concerns of our fellow citizens regarding this long-awaited reform, we will strive to be constructive, helpful, and effective, so that the process moves forward as quickly as possible within the established timeframe,” he said, noting that the goal is to find common ground and, if possible, to achieve a unanimous stance among all parties.

“The positive thing is that this time everyone shares the same goal: to find common ground so that the reform is as effective as possible, protects the macroeconomic impact on the local economy, and ensures the sustainability of the Social Security Fund,” he said.

When asked whether the question of how the reform would be financed had been answered, he replied in the negative, noting that this is one of the points on which clarification will be sought. “It’s one of the things we’re waiting for the technocrats to clarify, so we know where the additional costs might come from,” he said.

When asked whether there are any “red lines” regarding what was presented to the employers’ organizations, Mr. Rousounidis said that, beyond the KEVE’s position on the voluntary nature of the Provident Funds, “we will approach what we read yesterday in a positive, constructive, and beneficial manner, so as to foster a climate of consensus among all sides, with respect, moderation, and a strong sense of responsibility.”

For his part, the General Director of the OEB, Michalis Antoniou, stated that the initial assessment is positive. “The initial impressions are that, at first glance, this is a serious effort, within the limits of the country’s financial capabilities. There is an effort to rationalize parameters that were creating distortions at the expense of either the Fund or the insured. “A comprehensive approach is being taken, but we need to look carefully at the details,” he said.

Above all, he noted, we must examine the financial implications of the resulting increase in benefits, and whether the projected revenues, based on the assumptions, will be sufficient to cover them without raising contributions, “which is an absolute red line for everyone. “This is the key question regarding Pillar Zero and Pillar One,” he said.

He also noted that yesterday’s discussion was very productive. “I think it was the first time it had been so productive since this effort began, as the issues were now more specific, with numbers, scenarios, and clear examples.”

When asked about the government’s estimates of a fiscal cost of €50 million per year for the first five years, he assessed that this is within the state’s financial capabilities. “These are the issues we will examine with the help of our advisors,” he said.

“This expenditure, provided it is combined with the correction of distortions, is at first glance a manageable expense,” he said.

As he noted, “We still need some clarification from the Ministry of Labor regarding what it is proposing,” he said.

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Penalties, low-income retirees, investment policy, phased increases

The points of disagreement, as well as questions that remain unanswered for now, were highlighted in turn by PEO Secretary-General Sotiroula Charalambous.

Regarding the proposal to reduce the actuarial cut from 12% to 7.5%, Ms. Charalambous said that “the 4.5% relief provided applies only to the base portion of pensions,” noting that, once again, the proportionality of the system is being undermined.

She also noted that after the five-year transition period, the number of contribution years required to retire at age 63 will gradually increase from the current 33 to 38.

Regarding the proposed pension increases, he noted that “people have come to understand that the €150–€200 increase they were told about is part of a five-year process,” noting that this is a point for discussion.

According to Ms. Charalambous, another problem is that the proposal does not address the issue of widow’s pensions for men prior to 2018, citing “social injustice” and “creating inequalities” among beneficiaries of the system.

“We want to examine the issues surrounding changes to disability pensions and widow’s pensions. Some changes are more positive, while others are more negative,” he said, noting that they must be evaluated.

“We’ll look at it as a whole. There are significant issues—which we’ve identified as priorities in this discussion—and we’re not satisfied with the way they’re being addressed,” she said.

Regarding low-income pensioners, Ms. Charalambous said that on the morning before the meeting of the Labor Advisory Council on August 28, an extraordinary special session has been scheduled for the actuary to present recommendations on the plan for low-income pensioners. “It is important that we convinced the government that the plan cannot be scrapped,” she said, recalling that initially the government had spoken of incorporating the small allowance into the pension.

“We demonstrated that, even with the reform and following the increases—as the government itself acknowledges—there will still be retirees living below the poverty line. We consider it important that we convinced the government that the plan must remain in place and that it needs to be revised. We’ll see what criteria they set,” he said.

SEK General Secretary Andreas Matsas told CNA that there are positive elements in the bill, noting as significant the removal of a provision that would have had a negative impact on certain pensions and the improvement of some pension benefits.

He noted that there are questions they will raise at the next meeting of the Labor Advisory Council, while they are also in contact with the European Trade Union Confederation for further evaluation.

Mr. Matsas referred to “gaps” and issues that do not satisfy the unions, such as the provision regarding the 12% rate, for which, he said, they submitted a proposal that may be more acceptable without overturning the retirement age limit.

When asked whether the timeline set by the Minister is feasible, he said that submitting the bill to Parliament by September 20 is a bit “doubtful” since all organizations must first bring the issue before their governing bodies.

“For us, the key is to complete the process as thoroughly as possible, so that what is submitted to Parliament is as widely agreed upon as possible,” noting that, under certain conditions, it may be feasible to implement the reform as of January 1.

For his part, the President of DEOK, Stelios Christodoulou, welcomed the fact that the government decided to address this important issue, noting that the reform is moving in the right direction, and stating that it provides a solution to long-standing problems.

“There are some points on which we would like further clarification,” he said, citing first and foremost the Fund’s investment policy, how the money the government borrowed from the TKA will be repaid, and where and how the surpluses will be invested. “The Fund’s future financial health—and thus future benefits—depend on its investment policy,” he said.

Regarding the issue of the 12% actuarial reduction, Mr. Christodoulou said that “we do not agree with it at first glance, because we are talking about very small amounts, since the reduction will apply only to the basic pension.” As he explained, the government’s proposal amounts to around €20 per month, which does not reflect the expectations that have been raised.

He also noted that it has not yet been clarified how much the proposed reduction in the penalty will cost the Social Security Fund, which would indicate whether the proposal is more favorable or less favorable than the proposals made so far.

He also referred to the widow’s pension for men, noting that it is “an injustice that must be rectified,” while noting that the cost associated with this issue is decreasing year by year, as potential beneficiaries pass away. When asked about this, he said that the draft bill provided makes no mention of this issue.

Finally, he noted that the government must clarify what its contribution will be, especially for those with low pensions. He noted that tax and pension reform should have been implemented as a package, since most of the government’s fiscal leeway was spent on reforming the tax system, resulting in the funds allocated for pension reform being exhausted.

When asked whether there is room to reach the necessary agreements within the timelines set by the Minister, he said it would be better to have more time. As he noted, the process could begin on March 1 instead of January 1. He emphasized that the more unanimous the bill is when it goes to Parliament, the less it will be delayed there.

READ ALSO: Increases for 123,000 retirees: What the pension reform provides for regarding the 12% penalty

Provident Funds: A Bone of Contention

The draft bill presented to the social partners this week concerns pensions from the Social Insurance Fund, while on August 28, the government will also present its position on Pillar Zero—the state’s social benefits for low-income pensioners.

In contrast, the second pillar—which concerns the Provident Funds—has not been discussed so far, and is expected to be the source of greater disagreements among the social partners.

On the one hand, labor unions argue that the second pillar is an integral part of the reform and are calling for pension funds to be made mandatory for everyone, in order to ensure adequate retirement income for pensioners.

“We must also consider the second pillar, which cannot be left out of this specific effort; otherwise, we would not be talking about reform, but rather an amendment to existing legislation,” Mr. Matsas told CNA.

For his part, Mr. Christodoulou addressed the adequacy of pensions, noting that the profile of future retirees and their needs must be examined. “Pensions must be able to cover the basic needs of future low-income retirees: housing, food, and transportation,” he said, noting the need to strengthen the second pillar.

“This issue must also be agreed upon immediately and made mandatory for all workers, so that it becomes a genuine pension benefit,” he stated.

On the other hand, employers’ organizations are calling for incentives to expand the system on a voluntary basis, while warning that making it mandatory would be a casus belli.

Mr. Rousounidis told CNA that “we will not allow the debate on the second pillar to create any delays in the rest of the process of submitting the bill to Parliament for a vote on pillars zero and one”, while noting that the Cyprus Chamber of Commerce and Industry’s (KEVE) position on the second pillar “is crystal clear: Provident Funds must remain voluntary, and businesses must be given the tools and incentives to expand the system.”

For his part, Mr. Antoniou said that thanks to the performance of the real economy and the prudent management of public finances over the years, “I believe there is the necessary fiscal leeway to provide strong incentives to preserve the voluntary nature of the Provident Funds and expand their coverage to more workersin the private sector.”

He assessed that in the second pillar “we will face issues where it will be much more difficult to bridge differences, and the government’s role in encouraging businesses and employees to participate in provident funds through incentives is crucial,” while adding that if there are any proposals to make provident funds mandatory, “that would be a casus belli for us.”