New social security law sets only basis for reform

Parliament’s vote on the government’s reform bill of the social security system on Thursday night was an impressive anti-climax, considering both the passionate reactions the first proposals aroused when announced in March last year and the government’s initial intentions and expectations. The final text essentially leaves more unsettled issues than it actually resolves. Bearing the unmistakable influence of the expediencies of the current political situation and the government’s relations with labor unions, it leaves the most important points to be settled for the future. Case in point is the provision introduced at the last minute, concerning the bank employees’ pension funds: The exact wording was the subject of negotiations lasting many hours on Wednesday between the Labor Ministry, the ruling PASOK party-affiliated labor unionists (PASKE) and the Bank Workers’ Union (OTOE), while Economy and Finance Minister Nikos Christodoulakis and National Bank Governor Theodoros Karatzas were also involved in private consultations. The final provision, according to which the auxiliary pension funds of each bank may be merged into a single entity, is, according to all parties involved, more a wish than an actual legal tool. In effect, it removes legal obstacles that have existed to date for such a merger but does not attempt to deal with the terms and conditions under which such a fund would function. The provision for the bank workers’ retirement lump-sum funds fares rather better, as these can be converted to self-governing private entities and increase benefits, on the condition of actuarial studies being approved by the government. However, it does not specify the approval criteria. After the bill was passed, ministers conceded that it essentially provides just the basis for pension reform, the breadth of which will only become known in the next five to 10 years. Nevertheless, the new law includes a number of substantive provisions, laying down that the State will contribute 1 percent of GDP toward social security annually – in addition to employers’ and workers’ contributions – and introducing greater standardization for retirement ages, which in some cases enables people to retire earlier (i.e. at any age after 37 years of work) but, also, for those in certain privileged groups, later. Other substantive provisions concern the merging of single and auxiliary funds, and the introduction of vocational funds which will run on private economic criteria. The government, which is said to be hoping to see at least five such strong funds before its present term expires, was initially inclined to grant tax breaks equal to those applying for private insurance contracts, but ultimately decided to refer the matter to the planned tax reform. Questioned on the positive points of the new law, Panayiotis Theofanopoulos, the Labor Ministry’s general secretary for social insurance and one of the document’s basic formulators, only said he felt «personally and morally vindicated with the adoption of parametric changes in favor of groups of citizens who had hitherto been virtually ignored.» A report by the UK Government Actuary’s Department on the Social Security Foundation (IKA) has shown that under the previous average retirement age, which overall has not changed appreciably, the current ratio of 2.3 people employed for every pensioner will fall to 1.3 by the year 2035, casting serious doubt on the capacity of the system to fund adequate pensions. Ankara hopes that will encourage a return of capital from abroad to help Turkey achieve a 3-percent economic growth target this year after a 9.4-percent contraction in 2001.

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