Pension reform pledge

Prime Minister Costas Karamanlis said yesterday that the high growth rates of Greece’s economy and the fiscal consolidation being pursued by the government will suffice to pay for a viable reform of the social insurance system, without any changes detrimental to the insured. «We are securing high growth rates and consequently increased state revenue, and, at the same time, effective fiscal consolidation, with spending cuts in the wasteful and inefficient public sector,» he told the ruling New Democracy party’s Central Committee session, in the runup to elections scheduled for September 16. He pledged that there will be neither increases in social security contributions and the retirement age, nor any pension cuts. Reforming the country’s pension system is considered long overdue, as it is expected to face increasing funding difficulties in the years ahead, primarily because of the country’s low birthrate and aging population. The ratio of the economically active population to retired people has dropped from more than 2:1 20 years ago to about 1.7:1 at present. Public spending on pensions as a percentage of gross domestic product (GDP) now stands at 12.4 percent – one of the highest rates among members of the Organization for Economic Cooperation and Development (OECD) – and is projected to rise to 22.6 percent by 2050. The OECD has called for extensive reforms, including a rise in the retirement age in line with increasing life expectancy. So far changes have been marginal, confined mostly to the abolition of early retirement for mothers and annual 0.5 percent reductions in pensions for civil servants. A bolder reform attempted by the previous PASOK government was abandoned in the face of strong labor union opposition. Dialogue Karamanlis pledged, «We shall conduct an exhaustive dialogue with all political forces and social agencies to create a modern, fair and viable social insurance system.» He listed 11 reform proposals, including reorganization of insurance funds, their gradual merger, more efficient utilization of their property assets, and decisive action to deal with evasion of social security contributions, estimated at around 30 percent in the case of some funds. Also, the introduction of individual social security cards, incentives for people to remain at work beyond retirement age, plus a convergence of salaries and pensions to EU averages within five to seven years. Karamanlis said the government had fulfilled its pledge to raise the special «solidarity» supplement for low-paid pensioners and farmers’ pensions almost two years ahead of schedule.