Retiring at 63 will become harder under proposed pension changes, Labour Minister Marinos Moushouttas said on Thursday. After a five-year period, people who leave work at 63 will face a cut of about 15 per cent in their pension.
Speaking at the 17th Pension Forum, Moushouttas said the proposed increase in the required years of insurance contributions from 33 to 38 would make the conditions for retiring at 63 worse. After the five-year period, it would become difficult to retire at 63, and people would be encouraged to stay in work until 65, or voluntarily until 67. Those who choose to work until 67 will receive a 15 per cent increase as a reward, he said.
Most of the experts who spoke at the forum backed making provident funds compulsory. Moushouttas did not reveal his position on the issue. “It’s not black and white, we can find the middle ground,” he said, adding that everyone agrees a second pillar is necessary.
Support for compulsory funds
Andreas Charalambous, chairman of the Cyprus Fiscal Council, said the first pillar would not be enough to secure future pensions. He said compulsory provident funds were necessary, for the same reasons that the first pillar is compulsory.
Andreas Milidonis, professor of finance at the University of Cyprus, said Cyprus ranks fifth from bottom for its pension replacement rate. “The target is 70 per cent, while we are at 41 per cent,” he said. On the second pillar, he pointed to Ireland, where people without a provident fund are enrolled in a compulsory one, paid into by the employee, the employer and the state.
Former finance minister and parliament member Harris Georgiades, now an adviser at George Z. Georgiou & Associates LLC, said Cyprus’s first pillar compares well with those elsewhere in Europe. Cyprus falls short on the second pillar, he said, where state intervention and some form of compulsion are needed. Dimitris Georgiades, president of the Economy and Competitiveness Council, backed Harris Georgiades’s position on compulsion.
Coverage gap
Philippos Mannaris, partner and head of Aon’s Wealth Solutions for Cyprus and the Middle East, set out the direction he said pension reform should take. “We must make the leap from lump sum to lifetime income with planning and consistency,” he said.
Citing official data for 2023, he said only 27 per cent of employees in Cyprus belong to an occupational fund. That is just 132,000 people out of a total of 492,886 employees, excluding the self-employed and the public sector. The figure rises to nearly 30 per cent when Class VII insurance schemes are included.
Mannaris said discussion of first-pillar reform is scheduled for 2027. However, consultations on reforming the second pillar, which covers occupational pensions, are already under way. Aon is acting as institutional adviser to the Employers and Industrialists Federation (OEB) and the Cyprus Chamber of Commerce and Industry (KEBE).
Ageing population
Mannaris also focused on demographic trends. He said the world’s population aged over 65 would reach 1.6 billion by 2050, more than double the 2021 figure, and that older people would outnumber children by 2080.
In Europe, he said, the dependency ratio has risen from 52 per cent to 56 per cent over the past 50 years and is expected to reach close to 75 per cent by 2050. Together with a global pension gap projected to exceed 400 trillion dollars, this was putting heavy pressure on governments, employers and citizens to extend working lives and find new sources of funding.
