Cyprus’s pension reform includes increases in the minimum pension of up to 50% and a reduction in the 12% actuarial penalty, according to the framework presented at midday on Wednesday by the Labour Minister and his team to social partners.
The presentation was made during a meeting of the Labour Advisory Body and was, according to reports, fairly detailed, including specific examples and answers to questions that had been raised over time.
The biggest increases will go to those currently receiving the minimum pension. A pensioner currently receiving €436 under the existing system will receive €702 under the reform. One currently receiving €508 will receive €764, an increase of up to 50%. Among so-called higher earners, a pensioner currently receiving €2,129 will receive €2,168, while one receiving €2,540 will receive €2,580.
Beyond the pension increases, a significant change also affects the 12% penalty. The 12% actuarial adjustment applied at age 63 will not be fully abolished, since doing so would affect the long-term sustainability of the Social Insurance Fund. Instead, relief will be granted covering half of the period, and not exceeding nine months, from the actuarial reduction applied to the basic pension amount. This will apply to all existing pensioners, as well as future pensioners who retire up to the final year of the transition period, in 2031. For these cases, the actuarial relief will apply for life.
The increases will be funded by broadening the financing base and introducing a new contribution obligation for people with income from investments. This new requirement will apply to Cyprus or EU citizens, as well as third-country nationals covered by EU Regulation 883/2004, who are ordinarily resident in the government-controlled areas. It will apply up to the annual amount of basic insurable earnings, and only to those not already covered by another insurance obligation or equivalent credit.
Income counted towards this obligation includes earnings from office or position, dividends, interest, rent, intellectual property or patent royalties, fees and other profits derived from property. For employees who are also shareholders in the company they work for, dividends received from that company will count towards their earnings under this rule.
