A large number of provident funds and individual pension plans have been terminated as a result of the financial crisis of 2013, and further delay in introducing reforms increases the risk of today’s workforce being left without enough money to retire on, the fiscal council, an advisory government-policy watchdog said on Wednesday in its Autumn report for 2016.
“The Council feels that the effort to modernise the framework, including the creation of an effective oversight authority for pension funds, must be expedited,” the report said.
“In addition, the council feels the need for measures to ensure the adequacy of pension benefits for today’s and future generations.”
Among measures proposed by the council were incentives designed to encourage pension savings, in order to cover the gap created during the crisis, and ending the bad practices of the past, which allowed the poor administration of the funds’ resources, as well as the use of cash reserves for purposes other than funding retirement.
On Tuesday, the employers’ association (OEV) organised a conference on the prospects of the pension system in Cyprus, which kicked off discussion on the necessary reforms.
According to a report by Aon Hewitt, cited at the conference, employees need to save an average of seven times their annual pay in order to maintain their standard of living into retirement, and only three out of 10 currently in the workforce will have managed.
The study recommended that employees projected to have saved insufficiently for their years in retirement will need to either “increase their savings or delay retirement”.
Addressing the conference, actuary and Aon Hewitt (Cyprus) partner Philippos Mannaris said both these measures will need to be instituted, because with today’s interest rates, which hover around zero, each added year of life expectancy raises the cost of pension payouts by five per cent.
“There is a massive improvement in life expectancy,” Mannaris said.
“With very high debt levels in all major economies, we are heading toward extended periods of low interest rates, which, in conjunction with the increase in life expectancy, make pensions extremely costly, and this means that pension funds are dead and buried, which is what we see in all major markets. Pension funds are gone, and they’re not coming back.”
According to Labour Minister Zeta Emilianidou’s speech at the conference, read out by ministry official Alexandros Alexandrou, the cabinet has recently authorized her and finance minister Harris Georgiades to engage in dialogue with all stakeholders over the overhaul of the system.
“We were mandated with regard to a string of reform proposals on pension benefits, and the simultaneous strengthening of oversight on existing infrastructure,” Alexandrou said.
OEV chief Christos Michaelides said the association concurs on the desperate need for reform.
“It is high time that all stakeholders get involved in constructive dialogue for the entire system, to cover not only the viability of the fund’s payouts, but also the administration of provident funds and pensions,” he said.