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Greek pensions: at the heart of dispute with creditors

Friday, June 26, 2015 - 07:23
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Prime Minister Alexis Tsipras however contends that his recession-hit nation can ill afford cutbacks, and also faces fierce domestic pressure from his radical leftist Syriza party that came to power in January.

[ATHENS] Greece's generous state pension system is at the heart of fraught talks between Athens and its creditors, as negotiators seek to avoid the country's disastrous default and potential exit from the eurozone.

Athens is racing to finalise a deal ahead of a critical June 30 payment deadline for a 1.5-billion-euro (S$2.25 billion) IMF loan repayment.

Creditors are however refusing to unlock 7.2 billion euros in bailout funds unless Greece promises new reforms.

Q: What do the international creditors want?

Greece's European and International Monetary Fund (IMF) creditors argue that the public pension system is simply too expensive and unsustainable.

Prime Minister Alexis Tsipras however contends that his recession-hit nation can ill afford cutbacks, and also faces fierce domestic pressure from his radical leftist Syriza party that came to power in January.

Mr Tsipras has agreed to overhaul the generous retirement system and on Sunday proposed various reforms to raise two billion euros.

The creditors responded Wednesday with counter-proposals calling for Greece to abolish early retirement sooner and increase the retirement age from 62 to 67 by 2022, not 2025 as proposed by Athens.

In response, Athens withdrew two of its reform proposals under pressure from some Syriza lawmakers, including an unpopular increase in pensions contributions.

Q: How much are Greek pensions worth?

In January 2015, the average Greek pension stood at 713 euros per month, while the average supplementary pension stood at 169 euros per month.

Since 2010, as a result of successive austerity programmes, they have decreased by about 10-15 per cent to as low as 500 euros per month. The highest paying pensions have tumbled by as much as 45 per cent to 3,000 euros per month.

According to 2013 data from the Organisation for Economic Co-operation and Development (OECD), the average annual pension in Greece was 20,100 euros in Greece, compared with an average of 32,400 euros in OECD countries.

Almost half of Greek households are living on the retirement pension of a retired family member, according to a 2014 study by the confederation of professionals, craftsmen and merchants (GSEVEE).

Q: How has the system been reorganised?

The number of pension funds in Greece has been shrunk from several hundred before 2010, to just 13 today. Tighter regulation and more efficient IT has meanwhile helped eliminate abuses of the system.

Since January 1, 2013, the standard retirement age has stood at 67 years, but Greeks can take early retirement aged 62 if they have accumulated 12,000 working days' worth of contributions (or the equivalent of 40 years).

As a result of a series of reforms, Greece's pensions system moved from being rated the worst in the world to eighth-from-bottom, according to a global pensions sustainability index published by Allianz Asset Management last year.

Q: So why are the finances in the red?

The Greek pension system relies heavily on state expenditure, with not enough contributions from employees and employers, economists say.

This imbalance - which existed prior to the 2009 Greek debt crisis - has worsened during the six subsequent years of recession and painful austerity, during which time the unemployment rate spiked from 9.5 per cent to 26.6 per cent and gross domestic product (GDP) was slashed by a quarter.

Greece currently has a total of 2.6 million pensioners and 1.2 million people unemployed, with a total workforce of 3.5 million people. Its citizens are also among the oldest in Europe; around 20.5 percent of Greeks are over 65 years old.

Added to the picture, private pension funds have been forced to write off billions of euros after a dramatic Greek government debt restructuring in 2012 when the total value of bonds was slashed.

According to the OECD, citing 2013 data, Greece spent 13 per cent of its GDP on public expenditure on pensions. That compared with an OECD average of 7.8 per cent.

Since 2009, early retirement has risen 14 per cent in the private sector but by 48 per cent in the public sector.

AFP