Doubts raised over pension reform bills being ready next month

A major trade union on Tuesday poured cold water on the idea that pension reform legislation could be tabled to parliament in September, also expressing concerns over the government’s dual-track approach. Head of SEK, Andreas Matsas said they have yet to receive from the government the draft bill governing the so-called ‘first pillar’ of pension reform. The first pillar concerns chiefly the Social Insurance Fund (SIF) but also deals with other matters such as minimum pension and the 12 per cent ‘penalty’ for early retirement. The second pillar concerns provident funds. Separate bills have been drafted for each of the pillars. The process is currently in the consultation phase. Two meetings have been scheduled for the labour advisory board – comprising of representatives of the unions and employers’ organisations – for August 19 and 28. Once the consultation stage is over, the legislation goes to parliament. The government intends to table the bill for the first pillar by September 20. But the unions say there is not enough time for consultations by that date. Matsas recalled that at the last meeting of the labour advisory board, it was agreed that they would have about two months to scrutinise and discuss the government bills. As it now stands, he said, that timetable is not feasible. The unions have yet to receive a copy of the draft bill on the first pillar. Meanwhile the government is keen to drive through the legislation quickly, so that certain aspects of pension reform can be implemented as of January 2027. But other than timing considerations, trade unions are wary of the government’s approach of slicing up pension reform into two tracks. The syndicates want the whole package agreed at the same time. “If the planning does not cover everything, and we say that the second pillar will get decided two or three years later, nobody can guarantee us that it will be part of the reform,” Matsas cautioned. He added: “Governments come and go, priorities change.” What SEK wants is for the second pillar to be agreed from now – even if in practice it’s implemented subsequent to the first pillar. In the meantime, media reports suggest that a great deal remains to be resolved regarding the mechanics of the planned reform. Citing sources, daily Phileleftheros said the idea of cutting pensions on the higher end, to fund increased pensions on the lower end, is back on the table. This is despite recent public denials by both President Nikos Christodoulides and the labour minister. Unions have indicated their strong opposition to such an arrangement. But the newspaper said technocrats are now tinkering with a modified version – namely, that the reductions to pensions on the higher end will affect only future pensioners, not current ones. In addition, any cuts on these pensions would be made only to the proportional part of an annuity. A pension consists of two parts – one fixed/basic, the other proportional. However, in Cyprus only private-sector workers contribute to the proportional part of the SIF; government workers do not. This would mean that, if pensions on the higher end are slashed, it would apply only to the private sector. Another complication is how to determine which pensioners are on the high end – and therefore subject to possible reductions. For example, someone might not declare their real income, making less contributions, but is in fact wealthy. Yet another issue relates to the government’s stated intention of halting the decades-long practice of borrowing from the SIF. The state currently owes the SIF some €12 billion overall. If the state stops borrowing from the fund, it will have to make up for it from somewhere else – from the money markets. If it does, that would increase the public debt.