Nicosia: The pension reforms appears, at first glance, to be moving in the right direction, the President of the Cyprus Fiscal Council (CFC), Andreas Charalambous, told the Cyprus News Agency (CNA), noting, however, that the issue of the reform's cost and how it will be financed remains open.
According to Cyprus News Agency, Charalambous said that the Council had previously received some draft versions of the reform and had only now received the draft submitted to the social partners. 'We are still not in a position to go into detail,' he said, noting, however, that, in principle, some aspects are moving in the right direction.
He noted that, in early September, the Council will publish its interim report, which will place particular emphasis on the issue of pension reform. 'The issue of the cost and the method of financing the reform remain open. To the extent that we have all the information, this has not yet been fully determined. Both the cost and the financing are important elements,' he stressed.
Regarding the aspects of the reform he believes are moving in the right direction, the President of the CFC said the Council agrees with keeping the retirement age at 65. 'Given current conditions and based on demographic data both globally and in Cyprus, it is not feasible to lower the retirement age. Without any doubt, this would affect the adequacy of pensions,' he said. He added that, in principle, the incentives being offered for voluntarily extending the retirement age are also appropriate.
'It is also right that low-income pensioners and the basic pension are being strengthened," he said, noting that there is a small redistribution in favour of lower-income pensioners, which is also a step in the right direction,' he stressed.
He reiterated, however, that what is important is to have an actuarial study 'so that we know exactly how this affects the long-term sustainability of the Social Insurance Fund and how it will be financed.'
Asked to comment on the actuary's references to an annual burden of pound 50 million on public finances during the first five years, he said that what matters is how the reform will be financed. 'This is something that will be studied in detail,' he said, noting that if this is indeed the level of the burden, and provided that the long-term adequacy and sustainability of the system are safeguarded, it 'could be considered,' subject to a detailed examination of the provisions.
Charalambous stressed that the CFC agrees that the second pillar of pensions, concerning provident funds should be developed. 'The demographic data, both in Cyprus and in Europe, are such that the Social Insurance Funds alone cannot ensure adequate pensions. That is why it is very important to launch a major initiative gradually, beginning implementation as soon as possible, so that there is supplementary support for pensioners, primarily to ensure long-term sustainability,' he said.
The same, he added, applies to the third pillar, where incentives are provided for individuals to make their own pension arrangements. 'All three pillars, based on the demographic data, need to be developed in order to ensure adequate pensions over the long term,' he said.
Regarding the decision to end government borrowing from the Social Insurance Fund, Charalambous initially said the decision was correct because it is not appropriate for the Fund's entire reserve to be invested in government borrowing, particularly in the manner in which this has been done. 'However, this cannot happen overnight; it must be done gradually,' he said, adding that it is also extremely important to create the conditions for proper management of the Fund's reserves.
In any case, he noted, there must be professional and prudent management, meaning investments should be low-risk, which by their nature also generate lower returns. 'We must not get into situations that would put the Social Insurance Fund's reserves at risk,' he said.
Asked whether the decision to stop borrowing from the Social Insurance Fund could pose risks to public finances in the event of future crises, he said this is precisely why the termination of borrowing and the repayment of the amount already borrowed by the state should take place gradually.
For example, he said, as a first step, there could be no additional borrowing. In practical terms, this would mean that instead of achieving the 2-3% surpluses forecast for the coming years, the state would have balanced budgets.
From there, he noted, the repayment of the reserves should take place very gradually, so as not to affect the state's public finances and to allow for prudent management, because, as he said, 'managing such large amounts is not easy,' particularly for a small economy such as Cyprus, which does not offer many investment options domestically.
The social partners are submitting questions to the Ministry of Labour and seeking clarifications on pension reform following Wednesday's presentation of the draft legislation.
Speaking to the Cyprus News Agency (CNA), representatives of the social partners referred to the initial gaps they have identified in the proposals presented so far, while nevertheless stressing their positive willingness to seek common ground within the agreed timeframe.
Both employers' organisations and workers' organisations told CNA that the draft legislation is complex and is currently being reviewed internally in order to formulate their positions and request the necessary clarifications.