CYPRUS - The Cypriot government has once again been forced to face its bleak pension reality with the International Monetary Fund declaring urgent reform was needed in addition to the steps taken to address aging-related expenditure pressures.
Just last Tuesday, the European Commission issued a report that revealed Cyprus’s pensions expenditure was set for the steepest rise of any member state over the next 43 years.
The projected 12.9% increase was “the largest in the EU-25 and will exhaust the reserves by 2040”.
The Cypriot government received another rap on the knuckles following an IMF staff report highlighting the need for pension reform.
The IMF staff recommended the adoption of an explicit medium term fiscal framework to deal with the issue of pensions.
The Cypriot authorities are in the process of formulating a two-staged strategy to meet the pensions challenge.
The first wave of reforms includes tightening pension eligibility requirements — including those for a pension at age 63 — increasing social security contributions, and reducing the supplementary pension relative to the basic pension.
The second wave would further increase contribution rates and introduce additional parametric reforms.
However, the IMF noted: “Given the magnitude of the challenge, there was no alternative to deeper reforms of the social security system.”
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