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IPE special report May 2018

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Greek pension cuts affecting frugal workers 'disproportionately'

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Cuts to Greek pension payments disproportionately hit those who had the foresight to pay into the system, a paper co-authored by a member of the country’s actuarial society has alleged.

The paper, which examines the changes made to the Greek public pension fund for the self-employed (OAEE) in the wake of the country’s bailout, said it proved “beyond the shadow of a doubt” that there was a disparity in the way benefit reductions affected OAEE members depending on their contribution history.

In the paper, authors George Simeonidis of the Hellenic Actuarial Authority, Dafni Diliagka of the Munich-based Max Planck Institute for Social Law and Social Policy and Anna Tsetoura of the University of Leuven said they found that savers who were willing to set aside greater amounts of money had “come into a far greater reduction in both their gross and net incomes than the ones who chose to save only the mandatory amounts”.

The authors contended that those who paid the highest contribution rate into the pay-as-you-go OAEE saw their final benefit decline by three to eight times more than those who paid the minimum amount.

Calculations conducted by the authors found that those who contributed the legal minimum for 30 years would have seen a replacement rate prior to cuts of 109%, if one included payments from other state pension benefits.

However, after cuts, the replacement ratio would have only declined to 103% – the 6-percentage-point decrease significantly lower than the 29-percentage-point decline to 70% suffered by those who would have contributed the largest possible amount for 30 years.

“It goes without saying, these people who contributed more were also the ones who supported the Greek pay-as-you-go system and sustained a steady level of cash-flow from the insured to the pensioners,” the report says.

It finds that, while benefit reductions “are not per se prohibited by law”, circumstances call for a re-evaluation of the situation.

“Certain concessions,” the paper argues, “have to be made to protect the rights of the pensioners directly affected by law.

“While the principle of social solidarity is accepted as justifying the large differentiation between the reductions adopted on the pensioners that contributed the minimum and the maximum amount to the self-employed fund, the national legislator should take into consideration the principle of equivalence and proportional equality alongside with the principle of social solidarity under certain conditions.”

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