Following the introduction of new retirement conditions set in 2010, the pensions provided by Greece’s social security system in its current form will push future pensioners below the poverty line, the Bank of Greece warned in its monetary policy report published on Wednesday. The country’s central bank went on to recommend the immediate development of professional and private pension schemes so that workers retiring after 2020 will have a pension that they will be able to survive on.
Its report for the 2020-60 period painted a picture of a social security system whose main benefits will be significantly reduced, by up to 50 percent, while pensioners, whose numbers are set to soar, will be bordering on poverty levels.
“The total rate of replacement is estimated to drop to an average 48.5 percent in the 2020-2060 period against 95.7 percent before the social security reform,” the report says, referring to the rate that is used for the calculation of each pension based on the social security class and the number of working days. “As there will be no other revenue sources, the reduced replacement rate will lead even those who got up to 1.2 times the average income during their working years below the poverty line,” BoG warns.
What is this gloomy prediction based on? First, the reduction of expenditure on public pensions as a percentage of gross domestic product is certain. The target is for it to drop from 24.1 percent of GDP in 2010 to 17.4 percent in 2060. This reduction, occurring during a period when the number of people claiming pensions is set to skyrocket by 70 percent, is leading to a drastic drop in pension levels even for those who will have completed the full 35 years of work.
Amid this new landscape, the only certainty will be the basic pension of 360 euros per month, with the rest building up based on various coefficients leading to a pension proportionate to the level of salary and years of service. The new calculation method, which gradually adjusts pension levels to the reduced capacity of state funding, has been in force since 2010 and primarily concerns those who started paying their social security contributions from January 2011 and will be felt by those who are entitled to retire from January 2015.
This background of gradual and inevitable devaluation of the main pension and the redistributing system based on public resources led BoG to reiterate the need for the development of supplementary pension schemes, especially those connected to private social security programs.