Chaos in the Greek Pension System -- Cost, Deficit, Applicants
by Dimitris Rapidis and Martin Foehler
For the previous Greek governments and the pensioners themselves it is not a new condition. There was a mismanagement of public income and expansive corruption by state authorities for more than 30 years. The culmination of this phenomenon was during the 1997-1999 stock exchange bubble when the money from the major public social fund, IKA, were gambled in Athens stock exchange market. Big losses of money led this institution to press similar ones to jointly merge into a new unitary fund in order to absorb losses. And there is when the problem went beyond control.
Already since the beginning of the 2000s pensioners were waiting for two years in average to receive their first monthly pension. After the first bailout in 2010 there was an effort to rescue social funds from going bankrupt by increasing social and healthcare contributions. Still, pension funds are incapable of dealing with a mounting deficit surged during the previous decades.
The new bailout deal comes to intensify the current shortages and harden the life of pensioners. Almost 273,000 applicants will wait for an average of three years to receive their pension, which is also expected to be significantly lower comparing to what their monthly income was before applying. The overall cost to cover the amount for pension applicants has reached €4 billion and the funds are now faced with a huge internal debt.
Under the current circumstances, with the government restrained to seek for finance in the markets and cover the amount, the only source is again ESM and a special regulation that could be made between the government and the creditors to serve a part of it. Notwithstanding, such a regulation would necessitate additional measures to equalize the additional funding, meaning that a series of new austerity measures might be sought by the Ministry of Finance. In other words, this is another big "headache" for the government as the delay on pension payments will most possibly negatively affect tax contributions from this big segment of taxpayers, therefore jeopardizing the general estimations on public income and forcing the government to re-address the final draft of the annual budget that will be brought in vote in the Parliament by late November.
Added to the cost of paying pensions for 273,000 new pensioners, the social funds demonstrate a big deficit that comes up to €3 billion. Summing up, the current deficit and the prospective one are about to reach €7 billion. The new pension reform cannot address this issue nor can applicants be stopped and return to their position as the new age threshold is expected to run by the end of 2015. During 2013-14 many employees from the private and public sector, having fulfilled the necessary years to request pension, accelerated the process in order to avoid any new legislation grip. They achieved to do so, applications were successfully submitted, but now they find themselves in a limbo.
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Dimitris Rapidis is Director at Bridging Europe. Martin Foehler is Policy Analyst at Bridging Europe.
October 13, 2015