ECONOMY

Pensions will provide the ground for a new battle of generations

One of the many debates that do not take place concerns the social security system. Recently, Deputy Labor Minister Rovertos Spyropoulos, a former trade unionist who once appeared to the ruling Socialists as a left-wing troublemaker and who has now been thoroughly transformed into a radical reformist, floated a number of ideas about cutting employers’ contributions, raising the number of years necessary to obtain a pension, etc. The proposals were greeted with the usual outcry by the unions, brutally effective at nipping any dialogue in the bud, and in a surprisingly low-key manner by employers, who seem to have adopted a wimpish stance on these issues. There is a great deal, however, to debate. Social security contributions are among Europe’s highest, deducted from lower incomes, especially in the case of salaried employees contributing to the Social Security Foundation (IKA). As a result, any rises in nominal salaries are swallowed up or, worse, higher-paid employees are pushed into unemployment. On the other hand, consistently higher inflation, compared to other eurozone members, and the continuing excessive growth of the State, mean that only higher taxes and high contributions keep social security funds relatively healthy. A book by economist Platon Tinios («Growth with social solidarity – a framework for pensions in the 21st century,» Papazisis Publications, 2003), is a stimulating and relatively easy read, which forces us to look critically at our assumptions. Even though he is relatively restrained and diplomatic – he remains, after all, a close adviser to the prime minister – the author sends a clear message. This is not his first major contribution to the subject, since he was the major contributor to the so-called Spraos Report on the social security system, back in 1996. In the book, he lays emphasis not only on the economic – as he did before – but also to the social aspects of the needed reform. The social insurance system, after the war, was once used by governments with their hands on social security funds’ money, to assist in the country’s development. Later, it became a major income redistribution and welfare tool. As a result, the system’s finances became shaky and the system actually functions against our best interests, which lie in boosting productivity and adapting the economy to the new era. Pensions and one-off bonus payments to retirees account for 13 percent of gross domestic product (GDP) while social security contributions account for half of total social spending and are paid by 2 million people. The last is enough to remind us that any debate on changing them will be primarily political. Another very pertinent statistic: the majority of voters in the year 2033 will be pensioners. What pension are we talking about, however? And can we imagine the conflict that will arise, a conflict between those who are entering pensionable age and those undertaking to pay toward their pensions? This is the new battle of generations, and the longer the long-term survival of the system is postponed by half-measures, the more violent it will be. Those who have begun contributing to the system before 1993 will be in a better position than those who did so immediately afterward, despite the government’s attempt to provide sweeteners in its 2002 reform. Already, Tinios says, 30-year-olds face negative returns on their social security system contributions. There will also be a conflict between those who have managed to get higher pay and the majority who are tied to the levels prescribed by collective bargaining agreements. Why not provide incentives for the first group to turn to private pension schemes – for example, total tax exemption for the sums they invest in private schemes? The system needs these savings. Greek people are not ready for big changes. An example: in northern European countries, the number of people who believe that they will be pensioned off at a higher age more than tripled over the last decade. In Greece, it declined from 14 to 6 percent.