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14 June, 2024
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The mystery of Cyprus' social insurance fund

Cyprus' social insurance system under fire

By Panayiotis Kaparis

The Republic of Cyprus achieved its first significant milestone with the establishment of the Social Insurance System, originally introduced during the colonial era. Its primary objective was to eradicate beggary, remove "diakonetades" (beggars) from the streets, and eliminate the harrowing scenes of destitution in corners and alleys, reminiscent of World War II but now largely forgotten. Yet, similar distressing images have reemerged in major European capitals due to the "curse" of homelessness and on the internet, notably from the Gaza Strip.

Initially, social insurance in Cyprus exemplified social solidarity, not discriminating between the rich and the poor. Over time, a proportional system was introduced, where pensions depended on the years of contributions. However, political leaders found ways to bypass these regulations and receive multiple pensions without appropriate contributions. This resulted in unequal pensions, even though some legislation ostensibly covered them, legislation that they themselves had approved. Additionally, there were social pensions for housewives and other unfortunate individuals who couldn't secure provisions for their later years. This created a facade of equality.

The new government, led by Yiannis Panayiotou as the Minister of Labor, pledged to modernize the Social Insurance System. However, it failed to deliver on its promise, implementing a controversial "penalty" of 12% in the form of actuarial reduction for those who retired at 63 instead of 65, even though the system was designed to be proportional. This unequal treatment raised questions, particularly when private insurance companies adhered to their promises of investment returns based on years of contributions. Why did the state deviate from a system supposedly proportional to contributions? Social policy argued that it was funded by public expenditures. Nevertheless, there were concerns about the disappearance of ten billion from the fund, which was essentially a virtual entity.

Pensions for the elderly should embody social solidarity rather than perpetuate social inequality, as observed in Cyprus. The Byzantines were among the first to implement such institutions on moral and systematic grounds, positioning social policy within the Church. Since then, many nations and states have made endeavors to formalize care for the elderly and weakest members of society, often oscillating between charitable efforts and exploitation. In the United States and various other countries, access to healthcare and welfare is rudimentary without insurance, leaving a vulnerable population.

Actuarial studies periodically assess the Social Insurance Fund's sustainability. However, there should also be an examination of potential savings if older civil servants retire gradually, with the recruitment of younger replacements. Such a shift could enhance productivity and reduce the plight of young unemployment. It's an open secret that older public sector employees, especially those aged 60 and above, sometimes fail to meet their duties. This may explain the overrepresentation of managers rather than frontline employees in the public sector.

A supplementary qualification is advisable for those transitioning from the private sector to the public sector, gradually bridging the gap between the two domains. Regardless of the changes, it's essential to remember that no one is indispensable, be it prosecutors, judges retiring at 68, or politicians unfamiliar with retirement. The real world, waiting for us all, remains the ultimate destination.

[This article was translated from its Greek original]

Cyprus  |  economy  |  pension  |  elderly  |  employment

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