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The Association of Insurance Companies is ready to present to the government its proposal which will guarantee future pensions. It goes beyond the over-indebted pension funds and it will not burden the state budget.

The management board of the Association discussed today the final version of the proposal, which the sector will submit to the relevant ministries. The proposal provides for three pillars of social insurance, the first of them being the pillar of basic pensions which will be mandatory, the second will include pension funds and will be mandatory too, and the third will include individual insurance and will be voluntary.

The proposal states that the new system based on the European standards for the organization of pension programmes will ensure transparent procedures regarding the management of capital; it will be maintained by independent specialized companies and will require the provision of incentives for employees. Of course, the application of the new system will require changes in legislation.

If the management board of the Association approves the proposal of the relevant commission, it will be sent to line ministries to initiate a formal dialogue on the restructuring of the pension system of Greece which is scheduled to begin in the autumn as stated in the latest report of the Bank of Greece.

In particular, the position of the Association of Insurance Companies in Greece concerns the following:

• The main insurance funds will grant nationally guaranteed pensions which will be limited to the amount of 360 euro. In practice, the funds will function as the first pillar of social insurance and the employees' participation in them will be mandatory.
• Employers and employees will be jointly involved in the contributions, as is the case today.
• The employees will form the sum of their future monthly pension by adding the amount corresponding to their participation in the second pillar of social insurance to the amount of the national minimum guaranteed pension.
• The second pillar will be mandatory for the employees and the contributions will involve the employers too.
• For the purposes of the second pillar, private companies will organize pension funds to which employees and employers will pay a legally determined minimum amount (probably, it will be a percentage of the monthly income of the employee).
• If the employees want to increase the size of their future pension, they will be able to increase their contributions.
• Each employee will freely choose the pension fund of the second pillar from which he or she will receive his or her pension and to which he or she will pay the contributions.
• Each employee will be able to freely change the pension fund, having received the amount accumulated in the meantime. Of course, in these cases, only the fund managing the money will change without the money going into the hands of the employee.
• The change of employer will not mean a change of the pension fund for the employee. The new employer will undertake to pay the appropriate contributions to the fund which the employee has already selected.
• If desired, each employee will have the right at any time to increase the amount of his or her contributions, beyond the obligatory ones, to the fund from the second pillar of social insurance.
• The contributions and the extent to which the pension funds will participate in the formation of the employee’s pension will depend on the number of years of his or her length of service. For example, if an employee is at the end of his or her career today, probably he or she will not be allowed to participate in the new system. If he or she is in the middle of his or her career, his or her participation will be limited, and each new employee will pay the full amount of the relevant contributions. The way in which the employees will participate in the pension funds will be established by an algorithm.
• If an employee is fired, he or she can either suspend the payment of contributions to the two pillars of social insurance or continue paying them as self-employed.
• The pension funds will be managed by independent private companies. Banks and other companies specializing in this field will have the right to participate in the management of capital in addition to insurance companies.
• In particular, in order for insurance companies to participate in the management of pension funds they will have to establish subsidiaries whose sole activity will be the organization and functioning of funds from the second pillar of social insurance, and the management of capital which will be collected through the contributions of employees. Thus, each fund will be somewhat independent from the insurance company so that its operations and financial condition will not directly affect the capital adequacy of the fund.
• The funds will operate under the rules of free competition, as the employees will choose them on the basis of returns achieved and of other factors, such as the fund’s organization and operation, the services it offers, its brand name and whether it is a strong and reliable player in the market.
• In order for the government to develop the second pillar of social insurance it will have to provide mainly tax incentives to drive employees to invest in a more generous pension rather than limiting themselves to the payment of the mandatory monthly contribution.
• Each employee will be able to increase his or her pension by the individual insurance premiums which already are available in the market. In practice, this is the third pillar of social insurance. Within its context, the insured person will negotiate with the insurance company to enter into an individual contract.
• The insurance through the third pillar will not be mandatory.

Payment of pensions

After finishing his or her career, the employee will receive as a pension the minimum guaranteed amount provided by the law for basic insurance funds, plus the amount from the second pillar of social insurance payable from the pension fund to which the employee has preferred to pay the relevant contributions. If the employee has an insurance premium, the pension from his or her insurance company will be added to his or her monthly pension.

"This is a great chance"

"The issue of viability and shortfalls in public pension systems is a matter of public dialogue not only in Greece but also in almost all European countries. The consequences of the decisions that are taken today will affect us in the coming decades," said Chairman of the Association of Insurance Companies Alexandros Sarrigeorgiou at the opening of the session of insurers and reinsurers which took place on the island of Hydra.

"Since the welfare state has collapsed, in a society in which the market was in the shadow of the state "half-free" provision of pension and health care services to all without having the necessary reserves or capital, the Greek insurance market is now presented with an incredible chance to show dignity and fill that vacuum. This is the way in which the share of the insurance market in Greece’s GDP amounting to 2.3% today will reach 8 %, i.e. the European average," noted Sarrigeorgiou.

"As a market we must offer customers transparency, clear negotiations, products adapted to the economic reality, well-trained, selected and reliable insurers; we must train our customers because, although insurance seems to be a luxury product today, its absence may be disastrous for society," said the Chairman of the Association of Insurance Companies.

New institutional framework and reasonable action

The necessary prerequisite for the organization of pension funds will be the adoption of a new legislative framework , which will provide for the way of the establishment of the specialized companies, their regime of operation, the conditions under which they will manage their reserves, as well as for the control procedures by competent authorities so as to ensure their reasonable activity and to avoid blows that could lead to the collapse of entire systems.

Mechanism to guarantee private pensions

One of the issues that the government will have to tackle is the introduction of a mechanism to guarantee private pensions. Let us recall that Guarantee Fund "Life" is functioning for the insurance companies at present, which had to be involved in the consequences following the closure of two insurance companies, namely the "Aspis" group and VDV Leben International AEAZ.

Everything is ready

As to the timing of the restructuring of the pension system, sources claim that if the government decides to take swift actions, the market is ready to immediately respond to the new conditions by taking on the role that insurance companies in other major European countries have taken on.