Early pension penalty slashed for some

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The government plans to drastically reduce or waive a 12% penalty on early pensions if the retiree has contributed at least 40 years of work and contributions at 63, up from the current 33 years.

Labour Minister Yiannis Panayiotou said the Social Insurance Fund is sustainable, but the cost to underwrite such a relaxation on pensions cannot be increased.

It would depend on available funding and must not require a hike in contributions for all workers.

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

After convening the Social Insurance Council comprising social partners, labour unions and employer groups, Panayiotou said the proposal to reduce the penalty would favour 25% of pensioners, especially in the construction, manufacturing and retail sectors.

“The proposal affects a significant percentage of pensioners who have suffered an actuarial reduction, which is almost 25% of the total, through the exclusion of the full basic pension.

“The criteria set focuses on completion of 85% of the insurance period, which is 40 years,” Panayiotou said.

He said that early in the new year, the starting basic pension would increase from €442 to €500 a month and would be exempt from any penalty, benefiting “thousands of workers.”

Dialogue

Panayiotou said social partners will engage in a dialogue and public consultation over the next few weeks to review his ministry’s proposals.

“We are sure that the social partners will have interesting opinions and suggestions, which we will listen to with great interest, and I hope that within the next period, we will be able to have some positive development in this matter”.

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.

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.