Low-income pension thresholds locked in Disagreement persists over expanding Provident Funds to the private sector

The 12% actuarial reduction, the Social Insurance Fund’s (SIF) new investment policy, and the critical segment of the study regarding the increase of low-income pensions will form the "triptych" agenda for the Labor Advisory Board (ESS), which is scheduled to reconvene on Monday, May 25.

Marinos Mousiouttas, Minister of Labor and Social Insurance, along with Costas Stavrakis, actuary for the International Labour Organization (ILO), will table all three issues before the Board.

According to information obtained by Brief, the Minister and the actuary will continue briefing stakeholders on these pressing matters. They will thoroughly analyze and explain the data extracted from the actuarial study so that the perspectives of the other social partners, employers and trade unions, can be heard.

A new element emerging from the recent Board meeting is that the minimum pension may be set slightly below the poverty line index. Trade unions believe this likely outcome highlights the need for a comprehensive overhaul and design of the overall pension reform.

As previously reported by Brief, the government is eager to move forward with the first pension pillar concerning the SIF, leaving the second pillar, the expansion of the institution of Provident Funds into the private sector, for a later stage.

Crucially for both employer and trade union organizations, the state has clarified for the first time in decades that it will no longer borrow from the SIF. Furthermore, the government will gradually begin repaying its debt to the fund, linking payments to 0.3% of GDP.

Currently, the state pays a 4% interest rate to the SIF. If the state were to turn to international markets today to issue debt, its borrowing costs would be significantly cheaper, primarily because Cyprus’s credit rating sits at investment grade with a reliable credit standing.

The state's installment to the SIF may not be entirely fixed. At times, it will depend on the capacity of public finances. In the event of any fiscal setbacks, the payment of the installment may be suspended.

The Board meeting will also feature a debate on the 12% actuarial penalty currently applied to individuals who choose to retire at age 63 instead of the statutory age of 65. It is now final that this 12% penalty will be restructured.

For existing retirees who took their "old-age pension" at 63 and are subject to the 12% deduction, the ILO actuary’s study indicates that the penalty percentage will be reduced based on how many years they have been retired.

It is worth noting that individuals who retire at age 63 receive 26 more pension payments than those who retire at 65. Specifically, they receive 24 additional monthly pensions, plus two more monthly payments representing the 13th pension distributed during the Christmas period. A tiered reduction will be applied based on the number of years the 12% penalty has been deducted.

Regarding new retirees entering the "old-age pension" system, Brief reports that the right to retire up to the age of 67 will be introduced for the first time.

Under the upcoming regulations, the calculation method will change. The core feature will be a tiered penalty system, while provisions will be made to offer a "bonus" to individuals who choose to work up to age 67, provided they continue to pay their social insurance contributions.

Source: Brief