Cyprus state pension fund hike target set at 9,6%

Labour Minister Andreas Vassiliou started negotiations with all social partners Thursday to find ways to secure the viability of the near-bankrupt Social Insurance Fund, that needs to undergo drastic reforms in order to ensure that the present-day workers will have a pension when they retire.

One of the proposals put forward is to raise contributions to the Social Insurance Fund by 9,6% by the year 2050, but this on the presumption that the Fund’s yield will increase from 4.25 to 5%.

Some of the unions are dead against raising the retirement and pensionable age initially to 63 and later to 65, while the minister also said that the 6-month unemployment benefit granted to civil servants upon their retirement is unfair and “has to be abolished.”

All parties concerned – employers, employees, state – agree that measures must be taken immediately to safeguard future pensions, but some believe that efficiencies and better collection of contributions will also help improve the situation.

Employers and employees will be called to contribute an additional amount of 38% each on the salaries, while the government will add the remaining 24%.

The Financial Mirror was the first to report on March 21, that both employers and employees would be expected to make increased contributions from the summer of 2008 for a total of 5% in as many years. This would amount to 1.9% each for employers and employees over five years, while the Minister’s proposal, presented verbally, is a total of 1.3% for all contributions, raising concerns about the future viability of Fund.

A further 2.55% contribution on wages to the troubled National Health Service (NHS) may be avoided for now as despite all the good intentions of the Minister of Health, this plan will be delayed further, beyond the mid-2008 target set by Charis Charalambous.

Labour Minister Vasiliou is now expected to continue his negotiations with all social partners over the next few months in a dialogue where he will meet with unions leaders and employer organizations separately.

 

— Employers insist on retirement at 63/65

 

The most important issue according to the Cyprus Chamber of Commerce and Industry (KEVE) and the Employers and Industrialists Federation (OEV) is the increase of both the retirement and pensionable age to 63 and soon after to 65 for all, including sectors of the civil service who are considered a privileged labour force and refuse to discuss the issue.

“Civil servants do not make contributions to the SIF equal to what the private sector employees do, and they get double the pension than in the private sector,” KEVE Director General Panayiotis Loizides had earlier told the Financial Mirror.

He said that some of the issues put to the minister for discussion are the unutilized provident funds, the use of the rate of productivity (1.3% at present) as a benchmark for wage increases and the unfair situation where self-employed professionals (lawyers, doctors, etc.) contribute less than blue-collar workers.

Loizides added that the methods of payment of a basic contribution in order for someone to be able to receive a basic pension must also be reviewed, while a big problem lies in the fact that civil servants get a 6-month unemployment benefit after they have retired, an unfair benefit that private sector employees have never enjoyed.

Michalis Antoniou of OEV had echoed the same concerns but was much more vocal, as he often appears in public or on televised debates trying to argue the case for employers in the face of adamant union leaders.

“We must increase the retirement and pensionable age for civil servants to 63 and then to 65 for the SIF to survive. It’s that simple,” he said, adding that parallel to increased contributions from this category, the state must also consider granting some relief to the private sector employers.

“We are presently negotiating the renewal of the collective labour agreements for ten different sectors and wage hikes are at the top of the agenda of all the union leaders, who are not taking into consideration the additional costs imposed on the employers,” said Antoniou. “Demands even go beyond the logic of the rate of productivity and their demands are most unreasonable.”

He said that two simple measures would go a long way to relieving a heavy wage and cost burden from the employers.

“First, we have asked for the abolition of the 2% contribution to the Social Cohesion Fund, one that replaced the 2% Defence levy, but of which we have no information about amounts it contains and how these are utilized.

“The second is the reduction of the contributions to the state Redundancy Fund which must go down from the present 1.2% back to the pre-1996 rate of 0.6%, when the Fund only had CYP 300,000,” Antoniou said. At present this Fund has a surplus of CYP 130 mln (EUR 224 mln) that is rising steadily and monthly contributions can be reduced, he said.

 

— NHS not viable before mid-2008

 

KEVE’s Loizides and OEV’s Antoniou were united in their views that the NHS cannot get off the ground by the mid-2008 target set by the Health Minister.

“We have always had our reservations about the NHS, and in particular about the viability of the system,” said Loizides, while OEV’s Antoniou said that there are unstable factors in the whole equation.

If the NHS goes ahead as planned, employers will be called to contribute 2.55% of an employee’s wages per month, while the worker will contribute 1.5%. In the case of the employee already having a medical fund, then the payment for NHS will be mandatory and any other contributions will be voluntary.