GREECE - Pensions reform in Greece was passed by the National Assembly in June, amid widespread opposition. Criticism has come from the government's political opponents, public sector unions and the finance industry.
The reform will raise the replacement ratio for those who entered the workforce after 1992 from 60% to 70%, with a reduction in the retirement age for women in that group from 65 to 60. Other public sector workers will see their benefits cut. The replacement rate will gradually fall from 80% to 70% by 2017.
The main social security pension fund which provides insurance for most salaried private sector employees - the IKA - is to be funded through transfers of 1% of GDP in the form of special government bonds. It covers one-third of the population through contributions from employer and employee.
Miranda Xafa, a consultant with Schroder Salomon Smith Barney in Athens, said that the reforms do not go far enough: “The reform is to cover the deficit from that main pension fund for the next 30 years or so. After that it will go broke again so further reform will be needed.
IKA is pay-as-you-go and because the population is ageing very rapidly the contributions are not sufficient already to cover pension expenditure.” The ratio of the working to the retired population is set to fall from 2.1 currently to 1.1 by 2050.
The new pension regime also provides for the creation of fully funded professional pension funds, with optional employer and employee contributions. The final format of this scheme is still to be worked out.
These reforms seem unlikely to deflect criticism from the OECD, which has warned of the unsustainability of the Greek pension system. An OECD country survey said:
“In the absence of reforms, public expenditure on old-age pensions in Greece, which is currently about two percentage points higher than the EU average at 12-13% of GDP, is projected to virtually double by 2050 on the basis of demographic and labour force trends, and to be nearly twice as high as the EU average by then and by far the highest in the OECD area.”
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