ECONOMY

Nicosia unveils proposals for pensions

NICOSIA (Reuters) – Cyprus will seek a staggered increase in contributions and an increase in the eligibility threshold for old-age benefits to keep its pension fund afloat until 2050, officials said yesterday. Cyprus runs a pensions system based on compulsory contributions. It has not been reformed since the 1980s, and an aging population is putting increasing pressure on the viability of the system. A proposal unveiled by the Labor Ministry yesterday suggests an increase in contributions by 1.3 percent every five years, starting on January 1, 2009, and continuing until January 1, 2039. It would also raise the threshold for pension eligibility to 15 years of contributions, from the present 10. «We believe it is a proposal that can find broad acceptance from our social partners,» said Labor Minister Sotiroulla Charalambous. She said she hoped to have feedback from labor unions and employers’ groups by the end of June. Cypriot employers and employees are now each required to pay around 6 percent on staff salaries to the social security fund, which also covers future unemployment benefits and, conditionally on income levels, free or low-cost medical care. International organizations, notably the International Monetary Fund, have repeatedly urged Cyprus to overhaul its pensions system, saying a growing constituency of pensioners could threaten the long-term sustainability of public finances. Cypriots, who rely heavily on the public pensions system, now retire either at 60 or 63. Life expectancy is 77 for men and 81.7 for women. An aging population is exacerbated by dwindling birth rates, posing the risk of whether the island will have a work force able to provide enough contributions for future generations. On average there are 1.44 births per female, which has been below the population replenishment rate of 2.10 since 1996. According to EU assessments, Cyprus’s public pension expenditure will have to rise by 12.9 percentage points of gross domestic product by 2050 from 6.9 percent in 2004.