Setting up occupational pension schemes seems to be the future trend in Greek social security system. Until 2002, Greece was not familiar with the term “occupational pension scheme”, unlike other EU countries where supplementary provision already played a vital role in the social security system. In that context, the institution of pension schemes has arrived to meet future and Law Nr. 3029/2002, which introduced occupational pension schemes, is a genuine reform with an impact on the social security system that has yet to be demonstrated.
Implementing directive 1998/49/ and obviously influenced by the EC’s COM/2000/507, Law Nr 3029/2002 was passed in order to reduce workers’ dependence on the state and to counter the threat of an ageing society. Primary pension organisations’ reliability had been damaged due not just to demographic parameters, they also had a troubled past, as primary pensions organisations’ reserves had often been used by governments as means to implement social welfare policy. Despite the delay in adapting the directive, the reform was a step towards the system’s sustainability.
Designed to work on a supplementary basis for the time being, in no way can occupational schemes (as voluntary employer-sponsored pension funds) substitute for the benefits provided by primary insurance. The second pillar does not provide a remedy for the long-standing problems of the primary or auxiliary mandatory insurance system, but meets the need for a higher level of protection by encouraging savings and promoting harmony among the social partners. The success of the voluntary-based pensions institution can result in its transformation onto a mandatory basis, and be a partial substitute.
The immediate impact of the reform on the market was not sensational. Although everyone acknowledged the importance of the changes and several companies and trade unions showed interest in the establishment of pension schemes under the law, only three actually proceeded. The reasons were the natural scepticism of the market towards a novelty, as well as initial confusion regarding the financial incentives.
The criticism focused on the main characteristic of the institution: that of capitalisation.
The social partners feared that in a system almost exclusively based on solidarity.
The challenges aheadbetween generations in the first pillar, where today’s pensions are funded by the active population’s contributions, the concept of placing savings in a scheme that would fund pensions of tomorrow would be too much of a risk, without the state’s safety net. Explicitly mentioning the UK model, which in some cases veered towards speculation, the critics failed to see the crucial differences and advantages of the Greek legal framework, details of which were developed during the subsequent years mainly by ministerial decisions, implementing EU Directive 2003/41.
In particular, according to Greek Law, occupational pension schemes are legal entities under private law, carrying separate rights and obligations from the individuals insured in them, and are not merely ‘funds’, as is the case in the UK for example. As a result, there are certain formalities that have to be followed for setting up schemes, that go as far as requiring the minimum of 100 insured individuals, their schemes’ typical approval by the Minister of Employment and the publication of their official statutes in the Government Gazette; the idea is to ensure that the scheme will be sustainable in the long run.
Moreover, schemes’ coverage is broader than in most EU countries. Apart from the insurance risks of old age, death or invalidity, they can also cover sickness, unemployment and so on. They can also be set up on the initiative of either the employer or the employees (even by those providing independent services or farmers) and the parties cannot set any restrictions or make any discrimination regarding participation in the scheme, as long as the person is employed in the undertaking or the sector and qualifies. Taking up membership
in an occupational pension scheme in Greece is optional and exercised freely.
Finally, being under the supervision of the Minister of Employment and Social Protection, who is able to take any precautionary measures or impose sanctions in order to ensure the scheme’s solvency, and under that of the National Actuarial Authority, acting in an advisory capacity, occupational pension schemes are subject to a monitoring framework, which aims at the protection of the schemes’ capital and the individuals covered. The system of management rules and principles, special reserves, reinsurance and yearly actuarial reports, as well as the possibility of employees obtaining information on their own account and on the scheme as a whole through the IAS, or the ultimate right to transfer their account elsewhere, guarantees the schemes’ effective operation and makes them attractive to employees.
The flexibility provided for investment strategy and the principle of self-government when it comes to the scheme’s management, are certainly an asset in the pensions market.
Greek law does not interfere with the appointment of members of the scheme’s board of directors or with their operation. All relevant matters are provided for in the schemes’ statutes and internal regulation, designed under free agreement of the parties involved. Statutes refer to the schemes’ funding and determine whether it will be on a defined benefits or defined contributions basis. As to investment strategy, it falls within the board of directors’ jurisdiction to decide on the scheme’s business plan, its asset allocation, and the reserves management in general, so as to optimise returns. Outsourcing contracts to independent advisers, corporate counsellors, insurance companies and so on, which possess the know-how and provide highly specialised services and products, is an important option to achieve those ends.
To cap it all, in order to keep pension funds in the country and attract new ones, the Greek government decided on full tax exemption of the contributions paid to occupational pension schemes. Of course, there are still measures that need to be taken to counter the social partners’ doubts regarding the schemes, as the reform is still in progress, but the market’s interest has already livened up. The demand to establish occupational pension schemes has reached its peak in fields such as insurance and telecommunications. Clearly, an overall attractive regulatory framework has been put into place in what is still a ‘virgin’ market with unlimited scope for development, encouraging
even the implementation of pan-European pension funds, as they usually opt for a base in countries where the legal and financial
framework is more appropriate.
Occupational pension schemes can be considered to be the best alternative to the growing problem of state pension systems that are constantly under pressure due to life expectancy and substantial deficits, as well as a potential way out of excessive pensions expenditure and, in the minds of HR executives, a valuable tool in reward policy. In addition, they will certainly contribute to the modernisation and the competitiveness of the capital markets. Whether the Greek market will award them a substantial presence in it remains to be seen.