MPs scrutinise new pensions scheme bill

Lawmakers on Monday continued discussing the ins and outs of a bill introducing a new pensions scheme for civil servants and employees of the broader public sector, amid concerns as to whether the proposed fund will manage to be self-financing.

Speaking in parliament, actuary Marinos Theodosiou said that an analysis has shown the fund would have to generate a 1.5 per cent return on investment – over and above the going inflation rate. Failure to achieve the 1.5 per cent target would mean the state pouring in more money to keep the fund afloat.

The new pension scheme covers all full-time and part-time workers in the public sector – including semi-governmental organisations and municipalities – hired after October 1, 2011. The respective contributions by the employees and the employer (the state) have been set at 5 per cent each.

Asked by MPs whether the fund’s viability will depend on the number of participants, Theodosiou said no. Rather, it would depend on the manner in which the fund’s assets are invested.

“The logic is that the contributions will finance pension benefits without tapping into the state budget in the future,” he stated. “Each participant and their employer will finance their obligations, and not future generations.”

Legislators expressed concern over the fund’s investment policy and who would get to run it.

As it stands, the bill stipulates that the investment policy is the sole responsibility of the finance minister.

Disy MP Harris Georgiades suggested this was problematic, giving too many powers to the finance minister on such a complex matter. Instead, he proposed the relevant clause be amended so that a special committee draw up investment policy, and then present it to the finance minister for approval.

Other issues relate to the possibility of investing in government bonds, and under what conditions, as well as the question whether buying Cypriot government bonds would count as intragovernmental debt.

House finance committee chair Christiana Erotokritou said parliament does not have a deadline for passing the bill. Lawmakers would take their time to ensure they end up with a pension scheme that works.

“It is a very important bill affecting thousands of our fellow countrymen, but also impacting the country’s economy. So clear-cut rules must be put in place regarding the investment policy,” she noted.

Existing provident funds within the broader public sector may opt out of the new pension scheme. The Cyprus Telecommunications Authority and the Electricity Authority of Cyprus have already said they will not join.