ECONOMY

Social security reform linked to saving and growth

The Greek pension system needs to be re-examined immediately in connection with boosting saving and growth, the Foundation for Economic and Industrial Research (IOBE) stressed in its study of the social insurance problem, presented at a public event in Athens yesterday. The study, titled «Social Insurance, Saving and Growth: A Proposal of Economic Logic,» conducted by researcher Vassiliki Fioraki and IOBE’s research director, Professor Theodosios Palaskas, underscores the close link between the social insurance problem and saving and development in Greece. The study points out that social insurance reform must be tackled not as an «accounting» problem but as a growth issue, as it involves all significant aspects of economic and fiscal policy. It adds that initiatives are needed to tackle the social insurance problem immediately as it is rapidly becoming aggravated and the lack of action today may lead the country into a deadlock. Spending for public pensions was at 12.6 percent of gross domestic product in 2000 and is expected to rise to 19.6 percent in 2030 and to 24.8 percent by 2050. Greece, along with Italy and Austria, is in the worst predicament among EU countries in terms of deteriorating social security finances. The demographic imbalance (aging, increase of life expectancy and low birthrates), public debt, pension fund deficits and unemployment are the main factors aggravating the pension problem. The IOBE study singles out saving as the most crucial and determining factor for dealing with the issue. Although saving does not formally belong to the social insurance system, the two affect each other. The bolstering of long-term saving, according to IOBE, is particularly important as it is associated with accumulation of capital to fund retirement and other social insurance needs. It is also linked with the set-up of reserve funds to secure minimum acceptable living standards. Besides its contribution to the saver’s quality of life, strengthening long-term saving has a positive impact on domestic economic growth, as capital accumulation boosts the capital market and the competitiveness of the financial system. The investment potential of pension funds reaches trillions of dollars, while the total of these funds’ reserves exceeds $35 trillion globally. The IOBE study found that modern trends in social insurance reform dictate the creation of systems with multiple functions, incorporating wealth redistribution, saving and security through obligatory insurance systems of state and private management, as well as optional insurance systems of purely private management. Bolstering long-term saving and the successful establishment of pension systems with capitalizing character in Greece require readjustment not only of the legislative but also of the tax framework. Tax incentives are essential, relying on long-term planning and focusing on the products that guarantee capital accumulation. Finally, the IOBE study notes the need for initiatives to adopt and develop alternative forms of citizens’ pension protection.