More Greek reforms needed to alter 'generous' pensions - OECD
GREECE - The Greek government needs to consider yet more reforms to its pensions regime, including a major overall of actuarial calculations used as current projections suggest its public pension payments will account for 24% of GDP in 40 years’ time, suggested a report produced by The Organisation for Economic Cooperation and Development.
A whole host of pension reforms came into force last year, many of which were unpopular among residents and led to public strike action, as they led in part to the consolidation of 133 pension funds into 13, to assist improved administration and organisation.
The OECD said its latest economic survey of Greece that, despite these reforms, it believes further action is needed urgently, as the current “generous” calculation rate and age at which pensions income replacement rate is calculated is according to the salary earned in the last five years of working life, rather than against the average career income adopted in most countries.
Similarly, workers currently receive 70-80% of their wages at retirement and after completing only 35 years of contributions - and there is no early retirment penalty for anyone who started work at 21 - so the combination of all three elements means older workers are less likely to continue working to a later age if their salaries begin to drop towards the standard European retirement age.
The four-largest pension funds in Greece, for example, which account for three-quarters of the pension system’s outlay and worth 9% of GDP at present, will require a further 10 percentage points of financing by 2055, and public pensions spending will rise from 11% of GDP in 2005% to 24% in 2050 - against an average of 3% in other European countries.
The OECD noted analysis conducted by the National Actuarial Authority (NAA) showed delivery of the IKA plans - the private sector worker plans which have recently been reformed - still need further work as there are approximately 600 distinct tables specifying pensions entitlement for the insured, and all of which are subject to different contribution rates.
Making such changes would also reduce the IKA pension fund deficit by approximately 10% after 20-25 years, according to the NAA, while shifting to price-based indexation could also reduce IKA costs by 1% by 2050-55.
It recommends that a centralised and simplified framework for all pension funds would eventually allow for the introduction of a computerised management system - also helped in part by the introduction of national insurance numbers for every individual on 1 July - as this would bring improved financial control, along with other changes, and could lower costs by 0.6% of GDP.
“The recent reform did not change the generous pension calculation parameters of the system,” said the OECD in its report. “Instead, there is only a harmonisation of benefits which will be introduced gradually for members of the merger funds, which currently offer terms more favourable then those of IKA, whose own parameters are already generous by international standards.”
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