Dorita Yiannakou
The government has signaled a willingness to compromise on pension reform, revising its draft bill with three changes that offer concessions to unions and employers.
However, Kathimerini understands that there is little room for further changes, particularly those that would push costs beyond the level provisionally agreed with the Finance Ministry. Finance Minister Makis Keravnos is understood to be seeking to bring the cost of the reform down further.
The two main sticking points remain the 12% early retirement penalty and the second pillar of the pension system.
The bill is therefore unlikely to include additional changes that would significantly increase spending, such as alternative proposals for revising the 12% early retirement penalty. Nor is it expected to extend widowers’ pension entitlement retrospectively to men whose wives died before 2018.
For now, the government has referred the issue of provident funds to a technical committee examining practices in other countries. The committee is expected to complete its recommendations and submit them to Labor Minister Marinos Moushiouttas.
The revised draft, obtained by Kathimerini, would deliver pension increases over three years rather than five, extend the transition period from five to 15 years, and improve certain pension benefits. But it leaves unresolved the key issues on which agreement over the wider reform may depend.
What the revised bill provides
The bill would reshape key parts of the social insurance system, from contribution rates and funding to retirement eligibility, pension calculations, and the periods credited toward a person’s pension.
Particularly significant are the gradual increase in contributions, new contribution requirements for people receiving income other than from employment, pension credits for certain groups, and a mechanism linking retirement age to life expectancy.
The revised draft, amending the Social Insurance Laws of 2010 to 2026, provides for pension increases to be phased in over three years instead of five. It also extends the transition period from five to 15 years.
The pensionable age would be set at 65 and reviewed every five years in line with changes in life expectancy. The age threshold used in the legislation’s definition of a “minor” would also fall from 25 to 24.
Total contribution rates would gradually rise from 20.5% when the law takes effect to 25.5% by 2039. A contribution of 15.82% would also apply to income received by people classified as income earners who are not already subject to other contributions.
The bill sets a 15-year limit for paying outstanding contributions and restricts the imposition of contributions after age 67, subject to specific exceptions.
It also allows pension credits to be granted to certain groups, including mothers, informal caregivers, people with disabilities, students, and those entering the workforce. Eligibility would depend on ordinarily residing in areas controlled by the Republic of Cyprus.
On early retirement, the draft removes the reduction applied to the basic state pension. However, the supplementary pension would still be permanently reduced by 0.5% for each month it is drawn before pensionable age.
For retirement at 63, the required insurance record would rise from 70% to 80% of the relevant insurance units, with the change phased in from the law’s sixth year. Those who delay retirement until 67 would receive specified increases in their supplementary pension.
Existing pensioners would also be protected when their pensions are recalculated: If the new calculation produces a lower amount, they would continue receiving their previous, higher pension.
The Social Pension Law would be repealed, with existing recipients brought into the new framework for a basic old-age pension that does not depend on contributions.
The bill also changes the eligibility conditions for survivor’s and invalidity pensions to improve access to those benefits. In addition, eligibility for unemployment benefit after retirement would vary according to the amount received from an occupational pension scheme or as a lump-sum provident fund payment.
The sticking points
One of the biggest obstacles remains the 12% pension reduction imposed on people who retire at 63 rather than 65.
Both SEK and PEO propose gradually reducing the impact of the penalty and removing it entirely once pensioners reach a specified age. Neither union is calling for its immediate abolition across the board.
Their aim is to ease the burden on early retirees gradually, through an arrangement that can be negotiated and costed as part of the overall reform.
SEK’s proposal differs from the government’s approach, described as reducing the penalty from 12% to 7.5% for the basic pension only, while retaining the reduction on the supplementary pension.
The union wants further improvements, arguing that reform must protect pension rights without placing a disproportionate burden on workers and future generations.
An arrangement is also still needed for groups of public-sector workers, including police officers, firefighters, and military personnel, who must retire before turning 63. The challenge is to account for their circumstances without creating unequal treatment.
The second unresolved issue concerns provident funds, which form part of the pension system’s second pillar. It has been agreed that a roadmap will be drawn up for their reform at a later stage.
That issue will be negotiated separately and will not form part of the draft covering the first pillar, the state pension system.
As Kathimerini previously reported, the technical committee is examining practices used abroad, with guidance from foreign experts, to identify approaches that could work in Cyprus.
Unions and employers have been asked to submit their positions by Oct. 27. The committee will then assess and prioritize the options under discussion and draw up a comprehensive set of recommendations.
The plan will go to the labor minister, who will make the final decisions on whether provident funds should become compulsory or remain voluntary.
