Social partners and opposition parties oppose government reform of pensions system

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In March 2008, Greece’s conservative government unveiled a major reform of the private sector state pensions system. The changes, to be implemented in stages from 2009, include higher retirement ages, particularly for working mothers, fewer early and supplementary pensions, and mergers of existing social insurance funds. The government argues that the reform is necessary for the survival of the social security system. All parliamentary opposition parties are against the changes and have called for a referendum. The trade unions, too, have begun collecting signatures on a petition in favour of a referendum, and have in recent months organised major protests and strikes in all sectors of the economy to oppose the reform.

In March, the conservative government presented a draft bill reforming the state pensions system for workers in the private and ‘broader’ public sector (ie state controlled enterprises) (GR0801059I). The reform is supported in parliament only by governing party, with all opposition parties opposing the changes.

Prime Minister Costas Karamanlis has personally assumed political responsibility for the reform, arguing that the changes are necessary in order to secure the future of social insurance rights for the coming generations. He stated that the changes do not affect general retirement ages, the manner of calculating pensions or the amounts of employee contributions. In addition, the Prime Minister stressed that the changes were made following a lengthy dialogue with the social partners (GR0711019I).

According to the government, between EUR295 million and EUR509 million will be saved annually when the changes have been fully implemented. The Institute of Labour of the Greek General Confederation of Labour (INE/GSEE) estimates that the changes will save around EUR310 million a year, out of an estimated total of EUR47-48 billion required for the insurance system annually.

The pensions reform

The pensions reform affects around 2 million insured people and the main changes, which will be implemented in stages from 2009 onwards, relate to retirement ages, pension levels, and the structure of social insurance funds.

Retirement ages

Under the proposed new legislative framework, the retirement age for people with 35 years of insurance coverage is to increase from 58 to 60. This change will be implemented beginning in 2013, and will affect an estimated 225,000 insured people. For recently insured people (i.e. people who entered the social insurance system after 1993) the age for retirement on reduced pensions rises from 55 to 60 years of age.

The right of mothers with children under the age of 18 to receive reduced pensions at the age of 50 will be abolished. Such mothers may now receive pensions at 55 years of age; however, the child concerned must have been under 18 when the mother was 50 rather than 55, that is, the mother will be eligible to receive a pension even if the child comes of age in the interval between her 50th and 55th birthday. Pension ages for mothers of under-18 children will gradually increase by one year every year, beginning in 2013. It is estimated that this change will affect over 250,000 mothers in the coming years. The right of women employed in public enterprises and banks who have at least three children to retire on a pension irrespective of age will be abolished and their minimum retirement age will be set at 50. There are also changes for mothers employed in all sectors of the economy who entered the insurance system after 1993: for mothers with three children, the retirement age is increased from 56 to 59; with four children from 53 to 57; and with five children from 50 to 55.

Retirement ages will also be raised for people employed in arduous and unhealthy occupations, where the age for retirement on a full pension after 35 years of insurance has been increased to 57 from 55, and for retirement on a reduced pension from to 55 from 53. Implementation of this regulation will begin in 2013.

Lastly, people with 37 years of insurance can still retire on a full pension without any minimum age.

Pension levels

Even though the amounts of the basic pensions that social insurance funds provide will not change, there will be a reduction in the amounts of the contributory supplementary pensions for insured people. An upper limit of 20% of an insured person’s basic pension will be set on the amount of supplementary pensions they can receive. Insurance funds that currently pay supplementary pensions exceeding this percentage will be required to bring it down to the 20% limit. The reduction will begin in 2013 and will be made in eight equal annual instalments. It is estimated that the reductions to supplementary pensions will affect around 1 million insured people. At present, supplementary pensions after 35 years of insurance range between 12% and 80% of regular pensions, depending on the insurance fund.

The new regulations will discourage early retirement, since people who retire earlier than the normal age set by their insurance scheme will receive pensions reduced by 6% for every year of retirement prior to the year they would normally have retired. At present, the annual pension reduction for people who have opted for early retirement is 4.5%.

Thus, although the overall levels of basic pensions will not change, reducing individual benefits will indirectly reduce the total amounts received. However, provision will be made for higher pensions if workers choose to remain in work beyond the official retirement age. Pensions will increase by 3.3% for every year people remain in work, for up to three years after they would normally have retired.

Unification of insurance funds

Under the new regulations, the number of social insurance funds will be reduced from the current 133 to five primary funds, six supplementary funds and two provident funds. The five primary insurance funds will be the employees’ fund, the fund for self-employed people, the farmers’ fund, the fund for independently employed professionals (doctors, lawyers, engineers, etc.) and the fund for media workers. The mergers will begin during 2008.

Other changes

An Insurance Fund for Solidarity between Generations will be established to finance actions to assist people receiving low pensions and support the social insurance system in general. Its resources will consist of 4% of revenues from Value Added Tax (VAT), 10% of income from privatisations and 10% of the resources held by existing social insurance funds with healthy finances.

The number of days of insurance per year required for a person to be eligible to receive health benefits from an insurance fund will be increased from 50 to 100.

Reactions of opposition parties and social partners

All the opposition parties reacted strongly against the government measures, accusing the government of violating its pre-election promise in September 2007 not to change retirement ages. They are also doubtful whether the social insurance system will be viable after these changes are made and accuse the government of: not doing anything to combat contribution evasion, even though this would substantially increase the resources of the insurance system; and violating its obligations, laid down in law, to provide financial assistance for the insurance system. George Papandreou, Chair of the main opposition party, the Panhellenic Socialist Movement (PASOK), stated in Parliament that if his party comes to power it will revoke the law. On the initiative of the Coalition of the Radical Left, with which the rest of the opposition parties are in agreement, it has been proposed to hold a referendum on the measures.

The main private sector trade union confederation, the Greek General Confederation of Labour (GSEE), has started to collect signatures from citizens in favour of a referendum. The unions in all sectors of the economy have in the past few months held the biggest strikes in recent decades in opposition to the reforms (GR0801059I), as they see the social insurance regime worsening for specific categories of workers such as working mothers. When the law is passed, the unions will proceed to a new form of action, with workers in various sectors of the economy collectively initiating legal proceedings in the national and international courts (such as the European Court of Justice), to try to prevent the planned changes, which affect some of their specific rights, from going forward.

The employer side has also expressed concerns, arguing that although the measures are a move in the right direction they are not a real solution to problems because financing, as one of the conditions for the viability of the system, relies on the assumption that the state is reliable and consistent in meeting its obligations, which does not appear to be the case to date, it is claimed (GR0711029I). The employers have also expressed fears that the allocation to the Fund for Solidarity between Generations of 4% of revenues from VAT will lead to higher tax coefficients and thus a paralysis of economic activity.

Commentary

The changes to the social insurance system in the private sector are the first stage in changes to the overall system, with similar changes in the public sector to follow. These changes, which come at a difficult time for the economy, have provoked strong opposition from all the social partners, the opposition and even inside the ruling party, and the tension between the unions and the government is expected to continue in forms other than strikes, such as collective applications by insured people to the courts, in order to try to revoke the law.

Stathis Tikos, INE/GSEE

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