Bill on pension reform set to go to cabinet this week

Changes to the bill concerning the ‘first pillar’ of pension reform may be made after the legislation has been tabled to parliament, the labour minister said on Monday. Marinos Mousiouttas was speaking with journalists after the latest meeting of the labour advisory board – which features trade unions and employers’ organisations. On the bill itself regarding the first pillar, he said that if the attorney-general’s office finishes its legal vetting of it, the bill would be presented to the cabinet when it meets on Wednesday. If not, the bill would go to the cabinet next week. Government bills are first submitted to the cabinet by the relevant minister, and if approved tabled to parliament. The first pillar of pension reform involves a reworking of the mechanics of the Social Insurance Fund, along with state pensions; the second pillar concerns provident funds, as well as the cash reserves of the Social Insurance Fund and its investment policy. Pillar zero, as it is called, concerns pensions for low-income earners. Mousiouttas reiterated that the government’s aim is to roll out pension reform – the first pillar – on January 1 of the new year. ‘Feel the difference’ “This is so that people can feel the difference – big or small – in their pockets as of February 1, 2027, when the first transfer is made to their accounts.” On the ongoing talks with the stakeholders, the minister said he had anticipated difficulties. “I never expected anything different. But I’m confident we’ll be able to achieve what we owe the people at this time.” Asked about Monday’s discussions, Mousiouttas said some of the attendees proposed that the pension for low-income earners should be set at the poverty line level. On whether they discussed the employers’ view for a potential increase in the statutory retirement age (now 65), the minister said no. “In any case, we [meaning the government] do not endorse this position. Our position is that, if there is a need for a change, it will concern only the contributions rate.” Responding to another question, the minister said the stakeholders pointed out certain changes that should be made to the government bill. For example, one point of difference concerns the treatment of corporate dividends. Mousiouttas said the government may make amendments to a bill even after tabling it to parliament. This would not require him to re-present the bill to the cabinet. Definition of earnings changes The proposed reform alters the definition of “earnings” to include not only salaries but also income from dividends, rents and other property-related profits. For directors who are also shareholders, Social Insurance Fund contributions would be calculated on their total earnings up to the maximum insurable amount of €68,000 per year. Meaning that no contributions would be payable on income above €68,000. For instance, a director-shareholder on an annual salary of €50,000 would pay contributions on that amount. A further €18,000 would remain before reaching the €68,000 maximum insurable threshold. If the same person also receives €50,000 in dividends, contributions would be payable on only €18,000 of that dividend income. No contributions would be payable on the remaining €32,000. The contribution rate on salary income is 8.8 per cent, while the rate for dividends and rental income is 15.8 per cent for each insurance unit. The state’s contribution of 5.2 per cent would remain in place. Under the current system, employees also pay contributions up to the €68,000 maximum insurable threshold, but only on their salary. The Chamber of Commerce and Industry (Keve) has pushed back on the proposed change, arguing that it would create problems for small and medium-sized businesses, which comprise the majority of companies in Cyprus and where shareholders frequently also serve as directors.