At the center of the public debate is the long-awaited pension reform, with the demands of social partners clashing over the cost and sustainability of the Social Security Fund (SSF). As a guest on the program “Alpha News,” economist Tasos Giassemidis offered a realistic interpretation of the data, analyzing the fiscal assumptions and the narrow limits of potential interventions.
Read more: Pensions: The Unanswered Questions and the “Red Lines”
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Limited leeway
As Mr. Yiasemidis explained, the government’s current focus is exclusively on the first pillar of the system, a fact that imposes objective barriers to generous benefits. “When contributions aren’t increased and the retirement age isn’t raised, the scope for such a reform is limited,” he emphasized. At the same time, he noted that estimates of the total cost are based on specific assumptions—such as an economic growth rate of close to 2% and a TKA return of around 3.5%— warning that policyholders’ funds must not be exposed to investment risks.
He made special mention of the politically sensitive issue of the second pillar (Provident Funds), which in other countries serves as a supplement to ensure a decent income for retirees. He noted that in Cyprus, the wage replacement rate is only 40%, whereas a steady 10% contribution to a Provident Fund over 30–40 years can increase the replacement rate by up to 25 points.
“The National Pension Fund has limited means to boost pensions and remain sustainable. In every country around the world, this is supplemented by the second pillar,” he pointed out.
Regarding low-income pensioners, the economist clarified that the TKA is purely contributory and cannot replace the state’s social policy (such as the EEE), though he did welcome as a positive step the provision for crediting units to individuals who remain out of the workforce to provide family care. At the same time, he noted that the imposition of contributions on other forms of income, such as dividends, is under consideration.
“There have been cases of sole proprietorships where there was an incentive to reduce salaries and pay dividends at a 5% ‘emergency rate,’” he explained, in order to avoid contributions.
Read more: Pensions: Social partners left… concerned and with unanswered questions
Turning to the “hot-button” issue of the retirement age, Mr. Yiasemidis emphasized that demands cannot defy the laws of economics: “You can’t demand large increases in pensions while at the same time insisting that there be no increases in contributions and that the retirement age not be raised. The two are mutually exclusive.”
He noted that the European average retirement age is already 67, agreeing that safeguards and an automatic balancing mechanism should be put in place in the event of a deficit in the Fund.
Read more: Tough Negotiations Over Pensions
In conclusion, he referred to the principle of intergenerational justice, emphasizing that younger generations should not feel shortchanged by having to pay for increases granted to older generations. He noted that there are already legislated increases in contribution rates (2029, 2034, 2039) until they reach 10.3% on both sides, while also raising the issue of the TKA’s management of domestic government borrowing.
As he emphasized, the new actuarial study will take into account the employment rate and the average wage level in order to demonstrate whether the reform plan is sustainable over time.
