Social security changes enforced

Significant changes have been made to Greece’s social security system by the third Memorandum of Understanding between Greece and the Troika, which passed at the end of 2012. The main change is the increase in retirement age by at least two years for most categories of people covered by social insurance unless they were due to retire under the old provisions before the end of 2012. The new retirement age for most people will be 67, and a minimum 15 years of contributions will be needed to claim a pension.

Introduction

Significant changes have been made to Greece’s social security system by legislation that puts the provisions of the third Memorandum of Understanding into effect. As of 1 January 2013, the regulations set out in Law 4093/2012 increase the retirement age by at least two years for most categories of insured people unless they were due to retire under the old provisions by the end of 2012.

The new regulations

Law 4093/2012, passed at the end of last year and known as the third Memorandum, being the third stage of change in Greece’s financial infrastructure demanded by the euro zone countries for their continued support of the Greek economy. While the new law confirms the regulations set out in Law 3863/2010 for all those insured by social security institutions under the jurisdiction of the Ministry of Labour, Social Security and Welfare and by the Bank of Greece (GR1008019I), it introduces significant changes to the country’s social security system.

The official retirement age and qualifying insurance period have been increased by two years for most people since 1 January 2013, with the following exceptions:

  • insured women who establish a pension right as mothers of children and are incapable of working, and widowers with children and incapable of working;
  • those insured by the Ministry of Labour, Social Security and Welfare or by the Bank of Greece who have been placed in the labour reserve under Law 4024/2011 (GR1109029I).

An ‘established right’ to a pension exists when the insured person has made contributions for the minimum insurance period and has reached their minimum retirement age. An established pension right means the insured person can take their pension at any time, and can also continue working if they wish.

A ‘consolidated right’ grants the possibility for insured people to retire under the prerequisites set during the year in which they completed the required insurance period or reached the required retirement age limit.

The provisions of the third Memorandum law make it clear that pension rights established before 31 December 2012 are secure, as are pension rights consolidated before that date.

From 1 January 2013, the new law sets the official retirement age at 67 for most people, and makes 15 years the minimum insurance period for establishing a pension right. General qualifying conditions for a full pension are now a minimum age of 62 and 40 years’ contributions.

Evaluation of social security reform

Commentators, including the Greek General Confederation of Labour (GSEE), have said they believe that the state’s management of its reserves has systematically deprived the social security system’s resources:

  • statutory social security revenues have not been collected (in 2012 unpaid social contributions totalled €6 billion, according to the Social Insurance Foundation (IKA));
  • around 1.5 million workers, including both Greeks nationals and immigrants, have been partially or totally excluded from social security contributions;
  • the financial contribution of the state budget to the social security system is limited;
  • a €9 billion loss in social security revenues by 2019 is predicted because of increases in unemployment and job rotation, the proliferation of flexible forms of employment and wage cuts.

In addition, commentators have said that the safety of social protection previously offered by the Greek system is being gradually transformed into an individualised and privatised insurance system. This is being done by connecting the financing and economics of the social security system with the terms of the three Memoranda that have set the conditions for the euro zone’s support of the Greek economy since 2010. Although the aim is to reduce the public deficit and debt, the practical effect has been to reduce wages and pensions by at least 30%, reduce social spending and shrink the welfare state.

Commentary

The effect of the third Memorandum is to increase the retirement age and other terms of qualification for a pension through complex regulations and one of the consequences will be a significant reduction in the value of pensions in the future.

Cutting the overall public deficit seems to be the only purpose of the changes, rather than addressing the shortfall in the social security reserves.

The reform of a pension system is not simply a matter of funding. In a period of crisis, the primary concern should be to make sure the institution is sustainable without altering the social values on which it was built and or damaging its social effectiveness.

If this rationale for cuts in pension costs, increases in retirement age and the transfer of the pension burden to younger workers continues, the result will be the demise of Greece’s social security system and its replacement with an individualised and privatised insurance.

Anda Stamati, Labour Institute of Greek General Confederation of Labour (INE GSEE)

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