Government to scrap 12% pension penalty

The Labour Ministry is close to striking a happy balance between labour union demands to scrap the 12% penalty clause imposed on people who retire early at 63 and the state budget.

Labour Minister, Yiannis Panayiotou, will present a compromise proposal, providing the penalty be waived for those who have completed at least 33 years of service and contributions to the Social Insurance Fund.

Although the retirement age is 65, employees who have completed at least 33 years of work and contributions can retire at 63 but with an actuarial reduction of 12%.

The government set the age of normal retirement in 2012 at 65, with legal provisions included so that for each month someone opts to collect their pension earlier, the pension is reduced by 0.5% for every month.

The proposal will be presented before a Labour Council of representatives from the Employers’ side and unions, with the minister wanting to hear social partners’ thoughts on his proposal.

Final decisions are expected to be taken in September when the Council reconvenes after the summer holidays.

According to information from the Labour Ministry, the aim is to amend the law regarding pensions by the end of the current year.

Changes will be applicable for new and current retirees without a retroactive effect.

In recent years, opposition parties and trade unions have contested the 12% penalty on early retirement, with demonstrations taking place.

The Opposition claims that faced with the pandemic, the rise in unemployment and the inability of many workers to re-enter the workforce after a prolonged period of inactivity, full pensions at 63 should be restored.

If someone retires at 63 and receives a €1,000 pension when the penalty is scrapped, they will receive €1,120.