ECONOMY

Magic triangle for social security

Greece should take a leaf from other countries when it comes to reforming its social security system and adopt a structure that encompasses a modified version of the present pay-as-you-go system, a secondary fund backed by both employers and employees, and a voluntary, privately managed system, a study by two leading economists has suggested. Giorgos Provopoulos and Panayiotis Kapopoulos, authors of the study, The dilemma of the generations and economists at Alpha Bank, said that the three-pillar approach which follows in the footsteps of similar systems in the major Western countries would help spread the risks. Under their proposed three-pillar system, the existing pay-as-you-go structure would be reduced to a smaller scheme that would still be state-run, offer a minimum pension and indexed to inflation. Contributions from the State, employers and employees would be compulsory. The second pillar would consist of a mandatory fund backed by both employers and employees while the third pillar sets out a role for privately administered retirement funds, with employees deciding on whether to take up a supplementary scheme or not. The economists also proposed the setting up of an independent regulator who will make sure that privately run social security funds are administered competently and effectively. Provopoulos and Kapopoulos stressed the urgency of resolving the social security issue in view of Greece’s aging population and declining birthrate. Reforms are essential in order to ensure the retirement rights of present and future generations, they stressed. The economists said the existing social security system needs to be changed, as its shortcomings distort the economy and hold back growth. The soaring cost of retirement payouts and allowances, estimated at about 17 percent of ordinary budget expenditure this year, also presents a serious problem. Including social security liabilities, public debt is believed to exceed 300 percent of gross domestic product. The economists’ proposals come as the government prepares to launch a wide-ranging dialogue on social security reforms early next year. Attempts to resolve the thorny issue early this year met with strong opposition from trade unions who responded with two devastating general strikes. Well aware of trade unions’ negative reactions, newly appointed Labor Minister Dimitris Reppas has said he will attempt to secure a broad consensus from social partners on the issue. Unionists, however, continue to hold divergent positions from the official stand, insisting that funding remains the crux of the problem while rejecting the government’s efforts to raise the retirement age. Provopoulos and Kapopoulos warned that further delays in resolving the issue would jack up the costs of adjustments later on and increase political resistance.