The process currently underway to reform the pension system is more akin to a ‘social policy’ rather than a genuine drive to overhaul the system, an advisory body said on Monday.

“The efforts today, as part of the planned pension reform, are geared toward boosting pensions for people on low incomes,” said Demetris Georgiades, chair of the Economy and Competitiveness Council – an independent advisory board set up in 2018.

“However, looking at the historical record, looking at what’s happening across the West, pension adequacy is ensured by having a first, second, third and perhaps even a fourth pillar.”

By contrast, noted Georgiades, the drive in Cyprus is more akin to a ‘social policy’ rather than a sweeping reform of the pension system.

“It won’t solve for you the big problem,” he added, alluding to the adequacy of pensions in the long run.

The government aims to roll out pension reform at the beginning of 2027. The talks underway between the government and stakeholders – trade unions and employers’ organisations – focus on the so-called ‘first pillar’, which involves a reworking of the mechanics of the Social Insurance Fund, along with state pensions.

The second pillar covers provident funds and occupational pension schemes.

Pillar zero, as it is called, concerns pensions for low-income earners.

The government’s approach has been to place the pillars on different tracks. The legislation tabled to parliament – aimed at passing it before year’s end – concerns the first pillar only. The talks on the second pillar continue in parallel.

But Georgiades instead called for an integrated approach.

Unfortunately, he added, “this discussion is not happening.”

“Compared to Europe, where whichever indicator you look at, be it the savings ratio, or the assets in the second and third pillar, we are at about one-third of that.”

If the Europeans are worried, who have three times as many reserves and three times as many savings, then “how worried should we be?”

Georgiades recalled that during 2014 and 2015 the ‘troika’ of international lenders were puzzled as to why consumption in Cyprus remained high amid the financial crunch in the wake of the 2013 meltdown.

“Consumption was high because everyone dipped into their provident funds, eating away at their savings.”

This, he said, will be a price that Cypriots will pay in the future.

Georgiades proposed tighter mechanisms that make it harder for people to take out money from their provident fund or borrow against it.

“Sadly, this part has been left out of the dialogue on pension reform.”

Weighing in, the vice-chairman of the board George Syrichas noted that savings in Cyprus are quite low compared to the rest of the EU.

This constricts investment in startups as well as in the stock exchange.

“It shows that we choose consumption. And whenever we do want to invest, we opt for savings from abroad – foreign investors.”