GREECE - The Greek government yesterday approved a law to bring in a number of pension cuts in a bid to prevent the country's ailing retirement system from collapsing.
The reforms bring cuts to pension benefits, introduce penalties for early retirement, increase retirement age, and change the formula for calculation of pensions. The country's pension gap currently stands at €4bn for 2010, while its budget deficit is 13.7% of GDP - more than four times higher than eurozone rules allow.
The reforms include an increase of effective retirement age from the current 61.5 years up to approximately 63.5 years. The statutory retirement ages in Greece are currently 65 years and 60 for women working in the public sector.
However, some public and private sector employees, like the police, harbour workers, security services and journalists for the state TV and radio can retire in their 50s, because they are entitled to a pension after 35 years of social security contributions. In the future, these privileges will be abolished as pension calculations will be the same for everyone from 2013.
The minimum number of years an employee will be required to have worked to qualify for a full pension will rise to 37 years and there will be strong incentives to stay in employment for 40 years.
From 2018, there will also be a regime of basic pension of €360 a month for everybody. In addition, pension cuts will be introduced for all retirees of up to 15%, in both public and private sector; instead of 14 pension payments a year, retirees will receive twelve. Easter, Christmas and summer bonuses will be replaced by low flat rate payments.
The new regime also discourages early retirement. Retirees will lose 6% of their pension for every year of early retirement they take. There will also be a new way of calculating pensions, meaning final pensions will correspond to no more than 65% of the pensioner's monthly salary when in working life, down from the current 70%.
Dr Jens Bastian, researcher at Hellenic Foundation for European & Foreign Policy (ELIAMEP), said Greece's main problem was the excessive number of early retirees. "Especially in the public sector, some professions can retire only after 35 years. Many of these retirees continue to work after their retirement, and often their employment is unrecorded, so they get a generous pension and block entry to young people to the work market," he said.
According to Bastian, the current unrest reflected a conflict between generations. "However, the government has now adopted a crystal clear policy it does not support early retirement," he added.
The bill is due to be submitted to the Greek parliament later this week and is likely to be adopted into legislation by mid-June.