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If you thought Cyprus taxpayers face tough times ahead in order to bail out the nearly-bankrupt Social Insurance Fund, be grateful that at least we know we will get some sort of a state pension when we (eventually) retire. Workers in Greece are being asked to consider working and contributing to the age of 68 simply to ensure that they get a pension, any pension.
Although the Papandreou government said that its already bankrupt state-supported pension system is a 'black hole' that needs a general overhaul, one cannot blame the previous administration as only a year has passed since the New Democracy government introduced another set of reforms, albeit a controversial package of measures.
It’s easy for the present Labour Minister in Greece to say “we inherited a pension system with enormous problems and enormous funding needs,” but the real challenge lies in how he plans to raise the 2.5 billion euros needed to cover the pensions shortfall.
Similar to the situation in Cyprus and the rest of the EU, the problem is Greece's rapidly ageing population but also the massive contribution evasion by employers, many of them state companies.
The conservative government merged 133 pension funds into 13 new groups aimed at cutting operating costs and shoring up dozens of loss-making retirement funds, but ended up sparking major protests for months.
Trade unions accused the conservatives of exaggerating the problem in order to use the savings of healthy funds to plug holes in the pension system left by decades of unpaid dues to the main social security fund IKA. If anyone is to blame, it’s the same Pasok government that is being called to save the day, that created the problem in the first place through its tolerance of evasion by the state-owned companies in the 1980s and 1990s, resulting in more than 80% of the Greek budget being earmarked for salaries and pensions, while tax evasion is estimated at about 25% of total revenue.
Under the new reforms, pensions will only start kicking in at 68, but at least the basic pension is being raised from 350 to more than 500 euros a month.
In that sense, Cypriot pensions are far more generous, but the government should speed up its reforms of the Social Insurance Fund by immediately abolishing some of the unfair perks granted exclusively to civil servants that has exacerbated the problem by increasing the shortfall by several million euros a year.
Will President Christofias dare hike taxes and suggest raising the pension age to 68? It may be political suicide, but it may also save the SIF from total bankruptcy and revive our hopes of a pension some day.
