Let's be honest: if the government implements a real reform now, it will be like the one in France—and in Cyprus as well
The changes to the pension system are an improvement, but not a reform. For it to be a true reform, it would have to solve the problem of the Fund’s sustainability and, at the same time, ensure a good quality of life for retirees—both current and future. And it fails to do so.
It follows, however, the well-trodden path in Cyprus, as this is neither the first nor the last time a government has kicked a problem down the road. Not because it doesn’t know what needs to be done, nor because it doesn’t want to, but because the prolonged pre-election period is eroding the necessary political capital. Let’s be honest: if the government were to implement real reform now, it would go the way of France—and Cyprus. However, we’re not far from the moment when Generation X will start retiring as well. And that’s when the real work will begin.
ΣΧΕΤΙΚΑ ΑΡΘΡΑ
I trust that the technocrats at the Ministry of Labor and Marinos Mousiouttas possess the basic knowledge. They know that pensions must be increased. They also know that contributions must be raised and the second and third pillars strengthened to ensure decent pensions in the future. They know that a reserve must be created now—one that will be invested—so that resources will be available for the pensions of future generations. They also know that the redistributive nature of the pension system cannot be sustained indefinitely when we have fewer and fewer workers and more and more retirees.
They know that the age limit of 65 is already a thing of the past and that workers should be encouraged to remain in the labor market for more years. In other words, government spending will have to increase and cuts will have to be made elsewhere; employers and workers will be dissatisfied with the increase in their contributions, and union members will also be dissatisfied, who are demanding that the retirement age be lowered to 63 by eliminating the 12% actuarial reduction, even though we have in fact already set a course for retirement at 67.
Could the government introduce such a bill? No, of course not. Given all of the above, the “reform” includes only increases in pensions, to the extent that these do not create a problem for public finances—and certainly not to the extent that they would ensure a decent standard of living. Anything that might upset anyone and block the bill’s passage is off the table. At least for now.
The goal is to provide increases that will provide some relief, even if only to a small extent, to those on low pensions. The government stands to gain a few or many political points, while the opposition is banking on its own, promising more. However, the problem remains unresolved, and we will soon be faced with it.
In fact, I believe time is running out, as the moment approaches when Generation X—that is, those born between 1965 and 1980—will begin to retire. This is a generation that will have fewer workers following in its footsteps compared to today’s retirees, the majority of whom are baby boomers, that is, those born between 1946 and 1964.
The baby boomers benefited from generous social policies and the economic growth that followed World War II. They were able to buy homes at lower prices than those faced by Gen X, build wealth, and have a large workforce behind them to support their pensions.
Generation X, on the other hand, had to borrow more to buy a home. During their most productive years, between the ages of 28 and 43—the period when a person’s lifetime financial capital is built—they faced periods of high unemployment and economic crisis. At the same time, they made lower contributions to social security funds and contributed for fewer years, while their union coverage was lower and part-time employment and self-employment were more widespread.
The data is there and is available to both the Ministry of Labor and academics. Therefore, while it is unrealistic to expect a substantive pension reform in an election year, it is also a sign of political cynicism to label the changes being promoted as “reform.”
