GREECE/GLOBAL - Greece has pledged to undertake a pensions overhaul as part of the structural reforms agreed with its partners in the eurozone and the International Monetary Fund (IMF) in exchange for a €110bn (US$144bn) rescue package.
The battered country said public employees' pensions will be frozen for three years. In addition, pension payments of Christmas, Easter and summer bonuses will be abolished.
The Greek government also announced a comprehensive pension reform, which would include curtailing provisions for early retirement. But further details on decisions involving pensions have not been circulated yet.
Other measures Greece agreed to take include wages and public expenditures' cuts as well as reforms to fight waste and corruption. Greece said it will also work to eliminate non-transparent procurement practices along with undertaking measures to clamp down on tax evasion and step up prosecution of the worst offenders.
IMF managing director Dominique Strauss-Kahn said: "The Greek government has designed an ambitious policy package to address the economic crisis facing the nation. It is a multi-year program which begins with substantial up-front efforts to correct Greece's grave fiscal imbalances, make the economy more competitive and-over time-restore growth and jobs."
Hewitt international benefits team principal Tim Reay said the cutting bonuses would have a greater effect than the freeze. He said removing the Christmas, Easter and summer bonuses will result in a reduction in pension payments of 15%.
On the other hand, he said that freezing public sectors pension would have a completely different effect if the country is in an inflationary or deflationary environment. He said: "If we assume three yearly increases of 3% are frozen, then the country would save around another 10% in pension payments. However, if we are in a deflationary environment, freezing pensions actually increases them in value."
This is the second announcement Greece has made regarding plans to reform its pension system in the past three months after a long set of potential reforms were unveiled in February.
The government decided access to early retirement schemes would be reduced and incentives for workers to stay in the labour market beyond 65 will be adopted. The aim was to postpone the average retirement age by two years to 63 years by 2015.
It also said pensions would be calculated on the basis of the average contribution workers make during their career, rather than just the last five years.
At the time, the OECD said these measures represented "important steps in the right direction and they should be implemented vigorously".
However, it added: "Further efforts will be needed to ensure the long-term sustainability of the public pension system.
"Measures could include linking the retirement age to life expectancy and extending the number of years of contributions needed for a full pension."
The Pensions and Lifetime Savings Association (PLSA) has announced it will shrink its board by more than one-third as part of a governance overhaul to make it "agile and more appropriate".
Smaller FTSE 350 defined benefit (DB) schemes were nearly 15 percentage points less well-funded than larger schemes in 2017, according to a Goldman Sachs Asset Management (GSAM) analysis.
The advent of collective pension systems could help the UK avoid demographic challenges which will make it "impossible" for society to help savers in retirement, experts say.