Gov’t seeks to avert cuts to main pensions via contributions hike

Gov’t seeks to avert cuts to main pensions via contributions hike

The government is seeking to seal the reforms required in the social security system by using the cuts in expenditure described or provided in the 2016 budget and the increase in contributions by two percentage points as its main instruments.

Over the course of next week Athens must submit its definitive proposal in order to start its difficult negotiations with the representatives of the country’s creditors.

The government’s main objective is to reduce or even avert a fresh cut in main pensions through the increase in contributions. Auxiliary pensions are set for major cuts, while another 300 million euros is still being sought that may well come from slashing the main pensions of higher income categories and early retirees.

The government is therefore trying to protect the majority of the main pensions of those who have already retired by increasing the contributions of employers by one percentage point. This will be added to the increase of 0.5 percentage points for employers and 0.5 points for employees that along with the slashing of auxiliary pensions are meant to keep the system alive.

In total, the government will have to save 1.8 billion euros by the end of next year to safeguard the long-term sustainability of the system, and based on the agreement reached during this week’s meeting of the Government Council for Social Policy it will seek to maintain the redistributive character of the system.

The 2016 budget includes measures worth 1.4 billion euros for the social security system, of which 688 million euros remains unaccounted for. The Labor Ministry will have to slash spending on pensions by 538.5 million euros through the social security funds and by 187.7 million through the public sector’s pension fund.

It also includes revenues that will generate 1.11 billion euros’ worth of savings from pensions for 2015 and 2016 in total. This will happen via the increase in healthcare contributions to main pensions from 4 to 6 percent (532.5 million euros), the imposition of a healthcare levy of 6 percent on auxiliary pensions too (178 million euros), the impact of the gradual abolition of early retirement on the retirement lump sums (77.9 million euros), the reduction of the retirement lump sums through the new method of their calculation (86.9 million euros), the gradual increase in contributions by members of OGA, the farmers’ fund (102 million euros), and the reduction of recipients of the special social solidarity allowance (EKAS) for pensioners (223 million euros).

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