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High pensions with the biggest losses from the new financial measures

12 August 2012 / 16:08:33  GRReporter
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By the end of August the leaders of the tripartite Greek government have to decide what cuts will be made for pensions, lump-sum payment on retirement and benefits. The list of cuts amounting to 5 billion euro (up to 2 billion from pensions and lump-sum payments on retirement, and up to 3 billion euro from benefits during the period 2013-2014) has been prepared by the Minister of Labour and Social Security Yiannis Vroutsis in a close cooperation with the Ministry of Finance, which has requested the estimation of the fiscal benefit brought by each measure. This package of measures will be accompanied by detailed calculations and the party leaders will decide which measures should be implemented and which not, provided, of course, that it will be agreed with the supervisory Troika that these cuts should be made. The problem, however, is not just political, nor purely financial, since each "solution" of the many proposed, may further deepen other social problems (to lead, for example, to increased unemployment and poverty).

The already agreed cuts

The cost savings for insurance funds are already considered as certain, by means of increasing the deductions for pensions, abolition of bonuses for supplementary pensions, and cutting of double pensions. The alert for the new reductions from 1 January 2013 was given by the minister himself, who referred to the reduction of salaries and the inability of funds to pay pensions of the old levels from their reduced earnings. Cuts in social benefits (within the contraction of the social state due to lack of resources), in lump-sum payment upon retirement and an increase from 15 to 20 years of the minimum pensionable service to receive a minimum pension, have also been agreed. The latest increase is seen as an alternative to increasing the retirement age and as a measure to curb evasion of pension contributions (many are seeking to secure the minimum pension by paying contributions for a period of 15 years, and then continue to work under the counter).

The two scenarios for gradual cuts in pensions

Gradual cuts in pensions of 700 euro and more are foreseen. A more likely scenario provides for the deduction of 2% for pensions of up to 1,000 euro, 3% for pensions from 1,000 to 1,300 euro, 5% for pensions from 1,300 to 1,600 euro, 10% for pensions from 1,600 to 2,000 euro, and 15% for pensions of 2,000 euro and more. Deductions will be imposed on the total amount of the pension and for the first time those who have not been affected up to now (pensioners with pensions from 700 to 1,000 euro) will also have to pay. However, the authorities are considering a second scenario with larger deductions: 5% (instead of 2%) for pensions from 700 to 1,000 euro, 8% (instead of 3%) for pensions from 1,000.01 to 1,300 euro, 10% (instead of 5%) for pensions from 1,300.01 to 1,600 euro, 12% (instead of 10%) for pensions from 1,600.01 to 2,000 euro and 15% (as in the first scenario) for pensions of 2,000 euro and more. Plan B will affect pensions from 700 to 2,000 euro the most, which the majority of pensioners receive, and thus more costs to the insurance funds will be saved. For example, a pensioner receiving a pension of 1,050 euro will lose 31.5 euros per month according to the first scenario and according to the second - 84 euro per month. Twice more money will be lost for the pensions of 1,400 euro, since according to the first scale the loss would amount to 70 euro, and according to the second - 140 euro a month.

The Ministry of Labour's list of measures

The list of the Ministry of Labour and Social Security includes at least 10 major scenarios for cost cuts with various options, whose value is currently being calculated. These measures provide for:

1. An increase from 60 to 65 years of the age limit for payment of the allowance for social benefits (EKAS) of people with low pensions.

2. The gradual increase from 15 years (4,500 days) to 20 years (6,000 days) of the minimum pensionable service giving entitlement to a minimum pension, instead of increasing the general retirement age by 1 year to a total of two years (i.e. from 65 to 67 years). This option, although it remains on the negotiating table as a possible scenario, seems being abandoned now (it will "blow up" the program for reduction of the number of public sector workers through the discussed "labour reserve" and will increase the risk of unemployment among both young and older people, without being certain that it will bring 550 million euro annually to the funds, as it is assumed).

3. Cuts of double pensions (baseline scenario envisages a reduction of 35% of the bigger pension) including the widows' pensions. This measure is brought to the fore instead of the creation of new reduced ceilings for pensions, from which deductions are made anyway.

4. Removal of bonuses and the compensation for leave for supplementary pensions.

5. Reduction of 30 euro for the social pension in the farmers’ Pension Fund (OGA) - from 360 to 330 euro.

6. Binding the payment of social benefits (including the ones for large families) with income and property criteria. It is foreseen that the total amount of aid to large families (44 euro per month for each child and 177 euro for the third child until the age of 6) and the life pension of mothers of many children (102 euro paid each month regardless of the age of the mother) to be received only by those with an annual net family income of 10,000 euro. The baseline scenario discussed in the Ministry of Labour and Social Welfare, provides for the payment of 2/3 of the aid to families with an annual income from 10,000.01 to 20,000, and of 1/3 of the aid to family income of 20 000.01 euro and more.

Tags: pensions cuts reductions insurance funds Treasury Troika
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