The Labor Ministry intends to correct a considerable distortion of the social security system that has resulted from the introduction of the Katrougalos law. Leading to unreasonably low new pensions, the law is an incentive for undeclared and low-paid employment.
The government has promised to make structural changes to the replacement rates, which determine the pension amount as a percentage of the average salary the retiree got. The most likely scenario provides for an increase in pensions for those retiring after more than 30 years of employment, and mainly those applying for a pension after 40 years of insured work.
According to experts the current legislation, named after former labor minister Giorgos Katrougalos, grants retirees pensions 107 percent of their average salary as long as they received low salaries; for just 20 years of work they would get pensions of almost 600 euros per month. On the other hand, someone who received an average monthly salary of 5,860 euros over their 40 years of work would get less than 50 percent of their wages. This is what Katrougalos meant when he said his own law was unbalanced in class terms, benefiting those with low salaries.
Now the ministry is seeking solutions to make the system fairer, and the question is how it will provide insured workers with incentives to remain in the labor market, if that is possible. There are scenarios on the table for the increase of replacement rates by 2.5-3 percentage points for retirees after at least 30 years of insured work. It is possible the increase will be greater for those retiring after 40 or 42 years of employment.
Any interventions to the social security system will have to take place after the country’s highest administrative court, the Council of State, issues its verdict on various clauses of the Katrougalos law, including the replacement rate calculation.