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Victoria Mindova

As we advance in years, state pensions will decrease. Even if we are paying our contributions regularly and responsibly, we will probably not receive the desired pensions in the future. The trend shows that state budgets cannot withstand maintaining high pensions, which is threatening the quality of life in the third age. In some countries, the problems are just starting to emerge whereas in others they are already tangible.

"If, when the social security was formed, people retired at the age of 65 and died at 67, now the average life expectancy in Europe is about 86 years, which is changing the pension insurance market," Margarita Andonaki, Executive Director of the Association of Greek Insurance Companies, said at the Insurance Money Conference 2013.

The younger generations who are currently of working age could respond to the upcoming challenges through savings. Unlike our parents, we must save not only if we want to buy a home but also if we want to lead a normal life in our old age without considerable deprivation. The solution to the problem is the long-term accumulation of an amount which will be a “life belt” when it comes to pension. "Since we live longer, we must save more until we retire," Andonaki synthesized her message.

The share of the insurance market in Greece, including the small portion of private insurance, is 2.5% of GDP at present; it has turnover of 4.3 billion euro and manages capitals to the amount of 10 billion euro.

Alexandros Sarrigeorgiou, President of the Association of Insurance Companies and CEO of Eurolife ERB, sees considerable opportunities as regards the future of the insurance market. In his opinion, with a correct development strategy, the insurance companies will be able not only to fill the gaps in the state social insurance but also to increase their turnover to 10 billion euro a year by 2020. The business development will enable the companies to increase the capital they manage to 22 billion euro and to play a more significant role in the capital markets. 10,000 jobs will open and the prices of private insurance will increase to about 1,000 euro per year, which is still below the European average.

"The country is in a deep crisis, which is an opportunity for a change, including in the pension insurance market," states Miltiadis Nektarios, head of International life AEAZ.

The main reason for the people to avoid benefitting from the opportunities offered by the private insurance funds is the good quality of the services offered by the public insurance in Greece, whose level is satisfactory. According to Nektarios, who is also a professor at the University of Piraeus, this has changed due to the deepening of the crisis and the deterioration of the social policy brings to the fore new opportunities for private insurance companies.

There are about 2.9 million pensioners in Greece today. The total number of people of working age is about five million, 1.3 million of whom are now unemployed. Although the Organization for Economic Cooperation and Development ranks Greece third among the European countries in terms of the amount of the social security contributions, the public insurance funds cannot withstand the pressure of the crisis. Miltiadis Nektarios is of the opinion that three major groups are significantly interested in the reforms of the pension security system.

Until recently, retired citizens received about 75% of the savings accumulated in the public pension funds while they were working. They are the first to have directly felt the pressure of the crisis as their pensions have been cut. The other group that is interested in the development of the pension market involves the so-called Baby boomers or those born after World War II. They are to retire soon and due to the current crisis, they will receive less than 50% of the funds allocated over the years. The third major group, which is directly interested in the development of the pension market, consists of people under the age of 55 or those who are still working and who have the opportunity to additionally invest in their third age.

In addition to public insurance, the other two pillars of social security which are not well developed in Greece, namely professional insurance by branches and companies, and private insurance, could support the insurance market.

"In order for us to understand the role that private pension programmes could play, we must first be aware of what the state can provide," states the specialist.

Miltiadios Nektarios presented data showing that in 2010, the Greek pensioners received about 59% of their contributions in the form of pensions. It is anticipated that this percentage may fall to 50% by 2060. By comparison, the return on pension contributions in Bulgaria reached only 39% in 2010 and this share will fall to 37% in 2060.

The ratio between the contributions paid and the pension earned depends on the financial capacity of the country in which you are insured. The more unstable the financial performance in the long term, the greater the probability of you receiving, at the end of your life, a pension that will not meet your needs.

The reduced birth rate and the increased life expectancy will also affect the amount of pensions and the ratio of pensioners to workers. In 2060, the number of pensioners may be significantly higher than that of working people, which will affect the level of pensions as stated by the specialist. In other words, the public funds should allocate a smaller amount of money to a larger number of pensioners. Public pension funds are built, to a large extent, on the principle of solidarity between generations. This prevents current employees from saving for their future in public funds as they are paying the pensions of their parents.
 
Miltiadis Nektarios concludes that in the coming decades, the citizens will need 20% -25% in additional income above the pension to secure a decent old age. "This additional amount can and should come from private insurance," states Nektarios, stressing that the state pension will not be able to meet our needs in the third age.

"The situation is tragic. This is not related only to the crisis, recession and lower incomes. There is no one who can pay for pensions with an unemployment rate of 27%. Therefore, the working people will surely turn to private insurance," Yiannis Fourlis of Alpha Trust states as regards the future of the pension market. He stresses the need to build a rigorous framework and for the market to operate within it in order to allow the citizens to restore their faith in private insurance.

Fourlis commented on last year’s debt restructuring, the PSI. Despite the considerable losses due to the reduction of the nominal value of government bonds, the insurance companies have taken on the burden as stated by Fourlis. "This shows how strong the insurance companies are today." In order for the private insurance market to strengthen, experts insist on introducing educational classes at secondary schools as well as on developing insurance culture at an earlier stage.