ECONOMY

Private insurers see key role for capitalized accounts

Private insurance will be the ultimate solution for the country’s social security and pensions problems, complementing the existing systems, according to the CEO of EFG Eurolife Insurance, Alexandros Sarrigeorgiou. In an interview with Kathimerini, Sarrigeorgiou proposed moving redistribution systems into fully capitalized ones with the creation of personal pension accounts. Today, workers effectively fund two pension accounts: one for themselves and their future pension and another for those in retirement with the existing systems. There could be a disintegration of these systems in Greece and the rest of Europe, Sarrigeorgiou said. He also said the state must impose additional tax incentives so today’s young workers will care about their future and review the existing social security system. In this process private insurance ought to play a very important role, Eurolife’s CEO stressed. All insurance companies offer a broad range of products that combine saving, investment and coverage from risks. Consequently, insurance coverage and pension programs cover many needs and fit various employee profiles. How threatening is the pension problem today? A great deal. EU Economic Policy Committee data clearly show the current situation, such as the danger of disintegration the redistribution systems face. The data show that the ratio of the over-65 age group to the 15-64 group will shift from 25 percent in 2001 to 53.4 percent in 2050. We must also take into account the fact that Greece’s population is estimated to go down from 11 million people today to 10.2 million in 2050. These two figures are used to calculate the so-called «pressure index» for a solution to the social security problem. This index shows Greece in the worst position, although we have the most generous social security system in Europe, since the public sector spends 12.6 percent of gross domestic product on pensions. The size of the problem is also seen by this notion: For pensions and social security to remain at current levels the GDP percentage must rise to 24 percent in 2040. Obviously this is too high for any economy, let alone the Greek one with its serious fiscal problems. How can private insurance contribute in resolving the pensions problem? It can have a crucial role. We all have to realize we must take care for our pensions by gradually creating a stock for the future. This is the capitalized system that can be based on private insurance. This is what is already happening in many countries in the world from the US to Chile and from Ireland to Germany, with varying degrees of success, depending on the way it has been implemented. How can it be applied in Greece? Having learned from the mistakes and the problems other countries faced in their transition to capitalizing systems, in Greece we could create personal pension accounts. This could be done in several ways. A very radical proposal by the US administration is to take 6 percent of contributions to public funds and give it to the workers themselves for private insurance the way each sees fit. In my view, what would be more effective in many ways is the creation of private-personal pension accounts with the employees contributing part of their salary or profits before taxes. This way the system is considerably simplified, while providing taxation, liquidity use and other motives to employees. On the other hand, the public finances may be burdened by loss of revenues, but a compromise could be found and the benefit will be much greater than the fiscal burden. After all, these funds mainly take long positions, with particular benefit for the capital market. Couldn’t anyone do this on their own initiative? Not in exactly the same way, although there also are some significant tax benefits today. The law provides for contributions up to 1,100 euros per year to be tax exempt. This practically means an income benefit of 250 to 440 euros per year, depending on the tax bracket. Just this money saved from tax exemption put in a private insurance program would create a respectable amount for one’s future. The earlier one begins a private program the less money one needs to build such a great amount. For instance, for a 25- to 30-year-old who has started his/her career, 50 euros per month comprises a significant pension supplement. So what are you suggesting? I am suggesting that each taxpayer is not restricted to 1,100 euros per year, but also to invest his/her tax exemption amount in pension products. In essence, this is a savings of 100 euros per month on average. Even with much less money workers will reap benefits instead of doing nothing. If one starts saving at the age of 30, when he retires at the age of 65 he will get two-and-a-half times more than what someone starting at the age of 45 would. The crucial thing is to start such a program and have the discipline to adhere to it for all one’s working years.