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It allows API clients to download millions of rows of historical data, to query our real-time economic calendar, subscribe to updates and receive quotes for currencies, commodities, stocks and bonds. Click here to contact us. Please Paste this Code in your Website. Compare Retirement Age Men by Country. Greek Trade Gap Widens in September. Greek Factory Activity Consolidates in October. Greek September Inflation Rate Highest since To reduce these costs and create economies of scale, a single unified pension fund EFKA was created for all retirees with single management and administrative functions.
All other funds except non-pension activities of OGA and NAT as well as dividend funds for civil servants and their existing governance and management arrangements were set to be abolished. Electronic records were set to be created for both new retirees—to facilitate the recalibration—and existing retirees—to minimize errors, speed up the processing of pensions, and eliminate the vast backlog of unpaid pension obligations. These measures, if fully implemented, would lower the pension expenditure toward the European average in the long run.
However, the pension system would remain costly, in particular during the transition period, distortive, and subject to legal uncertainties:. Medium — run implications. This will continue to consume resources from the general budget, preventing the government to reallocate spending to other priorities, such as public investment, targeted social welfare, and other essential public services such as health care.
Long-run implications. These savings would then be offset by moving from price to wage valorization that in the steady-state, and under staff long-term economic projections see IMF, b , can add 5—6 percentage points to gross replacement rates of an average earner around 33—36 years of full service immediately before retirement.
Nevertheless, , even if all reforms were fully implemented as captured in the Aging Report, in the long-run steady state Greek pension system would still require about 4 percent of GDP in state transfers and provide lifetime benefits that exceed lifetime contributions by about 1.
Incentives to contrib ute. At the same time the combination of higher national pension and lower accrual rates imply much flatter pension benefit profile and a worsening of contribution-benefit links, with adverse implications for labor force participation. This reinforces existing incentives to retire at short careers. The fiscal adjustment delivered by the main pension recalibration and supplementary benefit reductions is largely borne by new generations of retirees with longer careers.
In contrast, individuals with shorter careers e. Moreover, the main pensions of current retirees were protected through the pension freeze, exacerbating already large inter-generational imbalances.
Finally, as noted above, specific interest groups continue to benefit from exemptions and special treatment and the system remains actuarially unfair.
In , the Council of State CoS ruled the cuts in pension benefits unconstitutional. While the number of pensioners eligible for retroactive compensation under the ruling was limited according to the initial decision, ongoing court procedures and new challenges for extending the eligibility and compensation period could still result in large retroactive payments.
Therefore, new claims cannot be ruled out going forward. The reform was also subject to legal uncertainties, as it preserved the structure of the cuts, which had been ruled unconstitutional in , and added new progressive cuts on some of the same groups of retirees. A CoS ruling issued in October appears to have contained this risk. The court ruled in favor of the merger of social security funds into the new single entity EFKA and the recalculation of pension benefits foreseen in the reform.
However, the ruling also requested adjustments to both contribution and pension benefit levels that will result in higher costs over the longer run. The reform package that aimed to rebalance the fiscal policy mix to support growth and social inclusion was not implemented. The reform strategy consisted of pre-legislating a package of fiscal measures, including further permanent pension reforms, which were scheduled to take effect from after the output gap was expected to have narrowed substantially.
The implementation of the pre-legislated measures would have created fiscal space for more targeted social spending, investment, ALMPs, and tax cuts, while still respecting the ambitious medium-term primary surplus target of 3.
The pension reform would have affected existing retirees, delivering net savings of 1 percent of GDP. Reductions either in main or supplementary pension benefits separately, including family allowances were capped at 18 percent.
For main pensions, cuts would have affected about 1. The inflation indexation suspension for all pensions extended until end was retained. Extending the new pension benefit rules to existing retirees would have improved the fairness of the pension system. As shown in the text chart, the unconditional recalibration of existing old-age pensions would result in larger cuts for high-income retirees with shorter years of contributions while slightly increasing pension benefits for lower-end pensioners with higher years of contributions.
Also, the application of a new single benefit formula would lead to higher cuts to those retired under more generous former pension funds, improving intra-generational fairness in sharing the fiscal adjustment burden.
However, the 18 percent cap on pension reductions lowered the re-distributional impact by limiting benefit reductions at the upper end of the distribution. The reform would have been accompanied by further changes to the minimum pensions and family benefits. In line with the direct recalibration of pensions, the past generous family bonuses still granted to existing retirees would also have been eliminated, allowing harmonization of family benefit rules with new retirees.
However, this reform was abolished before its entry into effect. The pre-legislated pension cuts would have allowed faster convergence to the lower long-run level of pension expenditure and fairer treatment of generations. The paths with and without the pre-legislated pension recalibration would converge eventually with the 4-year indexation freeze in both cases , meaning that the reform would have had little impact on long-run pension expenditure.
However, the reform would have eliminated the negative differences upfront, thus freeing up fiscal space cumulating to about 10 percent of GDP over 20 years during the transition period and ultimately enhancing intergenerational fairness of reforms through more equitable burden sharing. This additional fiscal space would have financed the rebalancing of the fiscal mix toward growth and social inclusion, helping finance direct tax reductions and more targeted social spending while honoring the ambitious medium-term primary balance targets.
In addition to the cancellation of the reform, program exit was accompanied by rollbacks of several other pension-related reforms. A new pension law adjusted elements of the reform to address a recent CoS ruling. A CoS decision issued in October called for adjustments to the law. The new pension law adopted in February addressed these points by applying higher accrual rates for workers with longer contributory periods, by restoring the level of supplementary pensions to the level mandated by the court and by modifying the social security contribution system for the self-employed, effectively delinking it from income and offering a menu of contribution and benefit scales instead thus, re-introducing fragmentation into the system.
The Easter bonus which had been restored in the previous year was abolished, in order to partially finance the higher main and supplementary pensions resulting from this ruling. The annual cost of the court ruling, initially estimated around 0.
The text chart presents updated pension expenditure projections including the effect of the pension law. Medium and long-term costs may increase further in the future.
Transitional costs will increase in the event that the government proceeds with its plans to introduce a three-pillar system, transforming the supplementary pension funds for the newly insured from a pay-as-you-go into a fully-funded scheme and introducing private insurance. The government has also committed to a gradual reduction in social security contributions by 5 percentage points during — The — pension reforms have a potential to significantly improve the affordability of the Greek pension system.
The gross replacement rates of old-a ge main pensions, the largest component of the pension system, remain broadly comparable to those under the reform, as the reductions in accrual rates are offset by a shift from a price to wage valorization see section III. The medium-term and long-term savings compared to reform depend crucially on the recalibration of existing pensions subsequently cancelled , restricting the pathways to early retirement and linking the retirement age to life expectancy, and streamlining the several excesses throughout the system.
Implementation of —17 reforms still carries several risks, highlighting the importance not to deviate from the set reform path. The implementation risks predominantly concern the following aspects:.
Reversals : abolishing pre-legislated recalibration of pensions reform , non-implementation of harmonization of contribution rules, and increased accrual rates will increase the expected spending profile not bound by benefit ceilings and limit options for growth-enhancing and socially inclusive rebalancing of fiscal policy mix.
A more prudent assumption as upheld in actuarial projections of some other countries in similar situations would be to base long-term projections of national pensions to wage indexation. Labor market exit age : improvement in the labor market would allow the pension spending to decline by close to 5 percent of GDP in the long run, supported by linking the retirement age to life expectancy.
With this the labor market exit age is projected to increase substantially from 62 in EC, to about 68 years EC, ; This is well above the projections for Germany Similar increases are reflected in the average contributory periods.
For such fundamental behavioral change to materialize, further structural reforms to strengthen labor and product market incentives are likely needed. Current design of the pension system still embeds powerful incentives to retire with 15—20 years of contributions and, unlike the retirement age, minimum years of contributions to qualify for a full pension are not linked to life expectancy, leaving an early pathway out of labor market.
Social benefits to retirees : since the gradual abolition of EKAS was legislated in mid the authorities have provided various fragmented social support that initially specifically targeted retirees while later reaching wider categories. Such track-record of discretionary interventions call for caution in both pension spending as well as in setting primary balance targets.
Further, during —15, health spending in Greece was compressed to one of the lowest levels in the Eurozone that is not sustainable IMF, Legal risks : The legal risks from freezing the existing pensions at end level to predate the CoS ruling appear to have decreased. In , the government paid 1. A pilot trial expected to clarify further unresolved issues took place in January , but its outcome is not yet known.
The Greek pension system has been complex and unaffordable, and earlier efforts to reform it have faltered. Generous benefits , nontransparent contribution rules, favorable treatment of special groups, and favorable early retirement options resulted in an unaffordable pension system.
After two major attempts to reform the system and bring down medium- and long-term costs, pension spending in Greece at end remained the highest in the euro-area, requiring state transfers that are several times larger than the euro-area average.
The — reform has many desirable features, though the overall pension system remained costly. Overall, given the initial conditions the reforms legislated between and constitute an impressive effort by any standards. However, the system deficit over the medium term remains an outlier compared to euro-area peers, and even in the long run retirees would receive lifetime benefits that exceed their lifetime contributions about 1.
Contribution-benefit links remain weak, limiting incentives to participate in the labor force, and the system is unfair with regard to the treatment of current and future retirees, as well as special interest groups.
Lingering legal risks and rollbacks amid reform fatigue give rise to significant implementation risks. While these reforms have the potential to considerably improve the affordability of the Greek pension system in the long run, several structural measures have been reversed and the projections remain subject to implementation risks see Box 2.
More prudent assumptions underlying the pension projections are called for, remaining pension system parameters should be clearly defined e. Reform design that would appeal on shared principles of equity and fairer burden sharing could foster greater acceptability and durability of reforms. The reforms were a crucial step towards medium-term affordability and creating space for growth-enhancing fiscal rebalancing.
Immediate recalibration of existing pensions would deliver the needed savings to allow for growth-enhancing measures beyond achieving the primary balance targets. It would also improve inter- and intra-generational fairness by achieving more equitable burden-sharing across generations and imposing larger cuts for high-income retirees at shorter years of contributions while slightly increasing pension benefits for lower-end pensioners with higher years of contributions.
The permanent non-implementation of the reform is thus a lost opportunity. Striving for efficiency gains, reducing administrative costs, and enhancing transparency should remain high on the reform agenda. NGEU funds provide an ideal opportunity to upgrade the digital infrastructure of pension funds. Completion of electronic records should be expediated for efficient recalibration of pensions and clearance of the stock of unpaid pensions to allow for realistic account of all obligations.
Conflicting legislation should be abolished to allow full clarity on reform principles e. In the medium term, the authorities should consider additional reforms to improve sustainability and incentives for longer contributions. Preferential treatments in terms of social contribution exemptions can be eliminated and contributions base for self-employed modernized to reflect actual earnings to strengthen fairness and sustainability.
More equitable burden sharing across generations should be pursued that would create space for growth-enhancing fiscal rebalancing. Lowering the tax wedge as fiscal space allows would help strengthen work and contribution incentives. All Rights Reserved. Topics Business and Economics. Banks and Banking. Corporate Finance. Corporate Governance. Corporate Taxation. Economic Development. Economic Theory. Economics: General. Environmental Economics. Exports and Imports. Finance: General. Financial Risk Management.
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The number of pensioners has been rising since The lenders have denied asking for specific pension cuts. But the Greek side said among their suggestions was slashing a top-up payment that supports some of the poorest pensioners. The average Greek pension is euros a month. Moreover, 45 percent of pensioners receive monthly payments below the poverty line of euros, the government says. With more than a quarter of Greek workers jobless, many rely on parents and grandparents for financial support.
Pension reform is a vexed issue for many European countries with ageing populations that can no longer support a generous entitlement system. Italy raised the retirement age under unpopular reforms in
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