The government’s draft proposals for pension reforms will centre on creating a more simplified system that will increase the benefits to low-income pensioners, reports said on Wednesday.

President Nikos Christodoulides said in September his government was committed to reforms and plans to have the relevant bills approved by the cabinet by the end of the year and then they would go to the House.

The aim is to have the bills voted into law before the May 2026 parliamentary elections even though no officials consensus has been reached yet with the social partners that includes the unions and employer organisations.

There are three main objectives for pension reform: increasing low pensions, strengthening welfare funds, and ensuring the sustainability of the Social Security Fund.

The last major reform on the pension system took place in 1980, with additional changes imposed during 2012-2013 as part of Cyprus’ agreement with the Troika.

On Wednesday, Politis reported that it had obtained an “internal note” that laid it out in more detail.

According to the note, the proposed reform is intended to create a simpler social security pension system based on the existing structure, “with targeted income redistribution” and better improved funding of the system by the state.

The note, it said, lays out the challenges of the existing system “which is facing serious challenges” as it does not ensure pensioners’ protection from poverty “nor adequate retirement income for all beneficiaries”.

The current system also inadequately addresses inequalities of retirement income between the two genders. At the same time the state’s participation in the financing of the system “is complicated and inefficient”.

Labour Minister Yiannis Panayiotou, speaking at a forum on Tuesday, without getting into details said the core of the reform was doing more for low-income pensioners and the strengthening of women’s rights “taking into account the multiple roles women play in society and in the labour market”.

Panayiotou said that the technical work on the reforms was progressing and he appeared optimistic that the bills would be approved by the cabinet within 2025.

According to the “note” the pension system will have two parts as it does today – fixed and proportional.

What will change is the method of calculation. The basic pension will increase and the contributory pension will be calculated in a way that will provide additional income to low-income pensioners redistributing it from high-income pensioners.

The highest-income pensioners in Cyprus are public servants who receive pensions commensurate with their salaries whereas in the private sector, there is a €2,000 per month limit on pensions regardless of previous salary or contributions to social insurance.

According to Politis, the financing of the revised basic pension will be done through the contributions of employees and employers as well as by the state. The low-pensioner supplemental allowance will be reworked based on income criteria. The reform includes transitional arrangements that will apply to both existing and future pensioners, it added.

As far as the government is concerned, it is proposed that there is a revision of the state’s investment policy for the social insurance fund and the formation of a new framework for its investments.

The labour ministry has commissioned the International Labour Organisation (ILO) to prepare a study on the reform of the pension system in Cyprus.