ILO examines future of social security system

In October 2007, the International Labour Organization (ILO) published the preliminary findings of an actuarial study on the prospects for Greece’s main social security and pension funds. The report argues that if the state meets its commitments to finance the social insurance system, this would prevent any problems of viability at least until 2025. The employers and trade unions agree on the importance of observing the state’s statutory financial obligation to the insurance system.

The International Labour Organization (ILO) has been conducting an actuarial study of Greece’s main social security and pensions fund, the Social Insurance Institute (Ίδρυμα Κοινωνικών Ασφαλίσεων, IKA), and also of the Agriculture Insurance Organisation (Οργανισμός Γεωργικών Ασφαλίσεων, OGA). The organisation published a preliminary note on its findings in October 2007. This report has been forwarded to the social partners as a further input to the current dialogue on reform of the social insurance system (GR0711019I).

Findings of study

The ILO study makes actuarial projections, based on an assessment date of 31 December 2005, for the next 50 years – until 2055. In its preliminary findings, the ILO states that, for IKA to remain on a healthy course financed solely by employers and workers, their contributions must be increased to more than 35.5% of pay, from the current rate of around 20%–23% of pay. Of However, the study finds that factors such as state financing, administrative costs, evasion and avoidance of contributions, along with possible measures aimed at cutting costs or increasing revenue, have not been taken into account. For example, in 2005, income from employer and worker contributions amounted to €5.3 billion, compared with expenses of €6.69 billion, causing a deficit of €1.3 billion, or 0.76% of gross domestic product (GDP). Nevertheless, these figures do not take into account the statutory state financing of 1% of GDP, which would bring IKA into profit. In fact, a projection of IKA’s deficits shows that if the statutory 1% of GDP is paid annually starting from 2005, a budget deficit will not begin to appear until after 2025. No investigation has been carried out in terms of when deficits would start to appear if the surpluses created from state financing on the basis of the statutory percentage of GDP were invested to generate further revenue.

The ILO was due to deliver a more extensive actuarial study in late November 2007. This study was expected to include forecast hypotheses, an analysis of the projection results, and recommendations from the ILO on how to deal with the problem facing Greece’s social security system.

Trade union view

The Greek General Confederation of Labour (Γενική Συνομοσπονδία Εργατών Ελλάδας, GSEE), the central private sector trade union organisation, believes that the ILO report confirms its own position that the main problem of the social insurance system is the state’s inconsistency in providing funds. For GSEE, the ILO study confirms the estimates and forecasts of an actuarial study of IKA conducted by the Institute of Labour (INE) of GSEE and of the Confederation of Public Servants (Ανώτατη Διοίκηση Ενώσεων Δημοσίων Υπαλλήλων, ADEDY) in 2005. The INE study found that IKA will face no problems of viability, provided that the state consistently meets its statutory financial obligation to the insurance system and as long as policies which the institute believes encourage contribution evasion by employers and undermine the system’s viability are brought to an end.

In GSEE’s view, the deteriorating ratio of workers to pensioners, which the ILO study notes as one of the negative features of the social security system, is due to another worsening phenomenon, for which GSEE believes the state is also responsible – that is, the problem of undeclared work, which has resulted in some 1.1 million workers not being covered by social insurance.

Furthermore, the ILO study does not take into account any possible earnings from the investment of the social insurance organisations’ annual surpluses up to 2024 – which, according to the ILO, is the crucial year for the insurance system to be capable of paying its beneficiaries. For GSEE, such investment would reduce the possibility of additional contributions and of measures such as increasing the retirement age or cutting early retirement. It could also create a large reserve capable of addressing any deficits up until 2040–2045.

Finally, in GSEE’s view, the study demonstrates that neither retirement ages (which are among the highest in the EU) nor the cost of pensions (with the vast majority of pensioners receiving only the minimum or close to the minimum pension) create problems for the social security system’s financial viability. On the contrary, GSEE claims that problems are created by the state, which allegedly fails to meet its statutory financial obligations, thus violating current legislation, and which is indirectly fostering the widespread evasion of social insurance contributions.

Based on the above analysis, GSEE argues that the problem of the insurance system in Greece is one of funds and revenue, rather than one of benefits and retirement ages.

Employer position

The Federation of Greek Industries (Σύνδεσμος Επιχειρήσεων, Σύγχρονη Ελλάδα, SEV), the main central employer organisation, supports the GSEE’s position regarding the state’s statutory financial obligation to the insurance system. At a press conference, the President of SEV, Dimitris Daskalopoulos, emphasised that the state has the full responsibility and obligation to observe the rules that it has legislated itself, and must pay the subsidies it owes. On the issues of avoidance of contributions and undeclared work, he stated that SEV has persistently demanded the formulation of a widespread strategy to deal with this ‘carcinoma’, which hinders efforts to improve growth and competitiveness. Finally, Mr Daskalopoulos reiterated the organisation’s proposal for two-level dialogue on social security: this would encompass, at the first level, dialogue among the political parties and, at the second level, dialogue between the social partners in order to formulate joint proposals.

Stathis Tikos, Labour Institute of Greek General Confederation of Labour (INE/GSEE)