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Anastasia Balezdrova

On Tuesday, the Greek government submitted to parliament the draft law that aims to carry out reforms in the pension system. The public reactions to the legal text began weeks earlier, after it became clear that the plan envisages increasing the contributions paid by employers and freelancers. The changes will affect farmers, who have turned their threats into actions and roadblocks have been a fact for several days.

Despite the discontent, however, the fact is that the Greek pension system needs to be reformed, otherwise very soon pensions will not be able to be paid. Are the measures proposed by the government in the right direction, are the protesters right, which is the sustainable pension reform for Greece? Financial analyst Kostis Lympouridis answered the questions of GRReporter.

Mr. Lympouridis, almost all professional groups in Greece, namely lawyers, engineers, doctors and other freelancers, farmers and so on, are protesting against the government proposal for pension reform. Why?

I think that this proposal is not actually a reform that aims to rescue and ensure the sustainability of the social security system, as the government claims. In fact, it is an attempt to rescue the system for a period of 3-4 years, within which the government believes it will be in power. The goal is to show that it has "fought against" the pension reduction.

At the same time, however, the government has signed the memorandum with creditors, which provides for cost cuts in the social security system amounting to 1.8 billion euro.

To combine these two things, the government claims on the one hand that it will not reduce the basic pensions but points out that the people who will retire after 1 January 2017 will receive much lower pensions than those who will retire this year. Therefore, the trend is to transfer the burden of big cuts to the new pensioners instead of reducing all pensions, but with a much smaller amount. The reason not to do so is that the new retirees will have no basis for comparison. It is one thing to reduce a retiree’s pension from 850 euro to 800 euro and quite different to give a new retiree a pension of 700 euro.

This whole tactic has a purely communicative character and affects one part of the reform burden. The other is related to the increase in social security contributions by 1% for employees and 0.5% for employers or vice versa. There are talks of various options but all is still rumours, there is nothing official yet. Anyway, I do not think that creditors would approve such a measure.

Nevertheless, it would result in additional burdens for the labour market. Employers now have difficulties paying the social security contributions and the trend is for them to increase. This would cost the employee a reduction of income by 1%.

For freelancers, the social security contributions currently amount to 3-5 thousand euro per year on average. Now the government is trying to link them to their income and to calculate their amount as a percentage of the income in accordance with a table that starts with 20% plus another 6% for health insurance, etc. The total "bill" amounts to about 35%. All those whose annual income exceeds the sum of 15,000 euro will pay much larger amounts than they are paying at present.

All these people are aware that this money will not be used properly and that it will not return to them at some point in the form of a pension. From the moment that the tax for freelancers is 26-29% and they are obliged to prepay its full amount for next year, the imposition of social security contributions amounting to 35% practically will leave nothing to them. They will work only for taxes. Therefore, the planned changes are not perceived as a reform but as taxation and an attempt to perpetuate an anyway unjust system.

Are there measures in the right direction in the proposed bill?

I have always believed that it is necessary to distinguish between the national (social - author’s note) pension and the pensions based on the length of service. Since the state budget provides 13 million euro to the pension system, the government could totally eliminate the social security contributions and announce that each citizen who turns 65 would receive a pension of 600 euro.

As for the higher pensions, ways should be found to link things to what the insured have paid to date. The pension system in Greece is not a system of capital cover, i.e. contributions are not collected anywhere to be returned in the form of pensions years later. It is a pay as you go system, which means that the pension funds are secured by the pension contributions and the state compensates the difference when there is a shortage of sufficient funds.

Therefore, I think that the establishment of a social pension envisaged in the bill makes sense, although it is not properly introduced. I.e. it does not say that it will give a specific amount to all but that it will give a specific amount to those who have length of service.