ECONOMY

IKA head explains his support for funded system

In his speech at last week’s conference on social security reforms held by umbrella trade union organization GSEE, the head of the body, Christos Polyzogopoulos, took many by surprise when he gave a positive response to a hitherto taboo subject, funded supplementary funds. Miltiadis Nektarios, governor of the Social Security Foundation (IKA), has always been a fervent supporter of a funded arrangement, regarding it as a way out from the crisis plaguing the social security system. In an interview with Kathimerini, Nektarios explained his support for funded supplementary funds and how the arrangement could prove to be an answer to the country’s demographic problem as well as give a boost to institutional investors and the ailing stock market in turn. What are the consequences of a funded supplementary social security system? Insured workers will not be affected at all. A funded system is different only in terms of its financing whereby investors contribute capital. This will help to offset the country’s unfavorable demographic figures. By contrast, the current pay-as-you-go system depends on the country’s demography. The new arrangement could apply to newcomers to the work force while a transitional solution could be worked out for workers already insured under the old system and which will depend on the size of additional contributions. Where will new contributions come from? From taxes? Taxes are out of the question. We can get extra revenues from other sources, such as going after those who evade paying their contributions and savings accruing from reduced public debt. What you suggest are just medium-term solutions. There is no need to do something immediately because capital for a funded system cannot be supplied now. The system can finance itself for a decade and when we reach the critical stage after 2010, it will have accumulated sufficient capital. However, management of the system should be left to employers and workers with the provision that a strong supervisory body be set up to oversee the organization and investment procedures for the fund’s reserves. The National Economy Ministry is currently setting up such a supervisory body, which will be responsible for the banking system, the capital market and insurance companies. The proposed body can play a role, supplementing that of the Labor Ministry. What is the difference between this fund and a privately owned company? A funded system acts as its own insurer, thus eliminating the need for a private insurer. It can operate in the same way as IKA-TEAM but will be managed as a private company with individual accounts for each insuree. Do supplementary funds have enough reserves to change to a funded system? The State can provide part of the finances by paying part of the 1.3 trillion drachmas which it owes to IKA. Will the state finally securitise public debt? We are close to signing a ministerial decree which will recognize the State’s 1.3-trillion-drachma debt to IKA. Following this, it will be possible to securitise this debt in the international market. So, the State debt toward IKA will be used solely to finance a funded supplementary system? It will form part of it. Revenues will also come from other organizations with debts to IKA and those who invest in state bonds via mutual funds. How have IKA’s investments fared in the stock market? We have shares in blue chips such as state-owned banks, Hellenic Telecommunications Organization and Hellenic Petroleum. Despite this, we have suffered accounting losses like other investors. Our losses amount to some 30 percent. To conclude, are you optimistic that an effective solution can be found to the social security problem? There is a broad convergence of views shaped by international experience. In the initial stage, the principal social security system should remain a pay-as-you-go arrangement. Supplementary funds, however, should be a funded system. Both funds should provide at least 80 percent of the insuree’s salaries. At the same time, we should have a guaranteed level of retirement benefits for those who do not have any cover at all or those who are inadequately insured. In other words, a general application of the pensioners’ solidarity supplementary allowance (EKAS).