* Lenders press Greece for more spending cuts
* Greece has highest pension spending in EU
* But Greece says 45 percent of pensions are below poverty line
* Pension reform a “red line” for Greece in talks
By Lefteris Papadimas and Angeliki Koutantou
ATHENS, June 16 (Reuters) - The plight of 79-year-old Athenian Zina Razi and thousands like her strikes at the heart of why talks between Greece and its creditors have collapsed. She lives off a pension system that helps to consume a huge proportion of state spending and can appear overly indulgent - but still she’s broke.
Razi barely keeps up with her power and water bills, and since her middle-aged son lost his job, supports him as well. “I am always in debt,” she said. “I can’t even imagine going to the cinema or the theatre like I did in the past.”
This paradox goes a long way to explain why the leftist-led government and its creditors at the European Union and IMF have failed to bridge their differences over a cash-for-reform deal, leading to Sunday’s breakdown of talks.
Five years of austerity policies imposed at the creditors’ behest have helped to turn a recession into a full-blown depression, and still they want more. Athens has flatly refused to achieve further savings by raising value-added tax on essential items or, crucially, slashing pension benefits.
As it inches closer to default and a potentially calamitous exit from the euro zone, the government has dismissed such demands as “absurd” or designed to pummel Greeks’ morale.
To the lenders, the pension system is still too generous compared with what the country can afford. Greece spent 17.5 percent of its economic output on pension payments, more than any other EU country, according to the latest available Eurostat figures from 2012.
(For graphic on European pension expenditure, please click on link.reuters.com/pyb94w )
With existing cuts, this figure has since fallen to 16 percent.
However, one person familiar with the talks said wages and pensions together still eat up 80 percent of primary state spending, before debt servicing costs. “The remaining 20 percent is already cut to the bone, indeed too far,” he said. “Civil servants have no pencils to write with, buildings in need of maintenance are crumbling. It’s not possible to make public finances sustainable without working on wages and pensions.”
Despite years of reforms, many Greeks can still retire early, especially workers in the public sector and professions classified as hazardous such as the army.
One high profile example is Fofi Gennimata, who became the leader of the opposition PASOK party last weekend. She is a former bank clerk with three children who applied for a pension last year aged just 51. Her office says she has stopped taking the pension payment since becoming a member of parliament.
Greece’s state spending on pensions is three times’ higher as a proportion than Germany’s, and critics accuse Greece of wanting a soft life at somebody else’s expense.
Demographics haven’t helped Greece. The number of pensioners has been rising since 2009. That’s either because the state has offered incentives to workers to retire as part of efforts to cut wage costs, or because workers themselves rushed to do so before the government raised the retirement age.
To many Greeks, not least the Syriza party that stormed to power in January promising to push the clock back on austerity, the creditors’ demands are yet another way to clobber vulnerable people needlessly.
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. For Razi, that would mean losing 180 euros ($203) out of her 650-euro monthly pension.
The average Greek pension is 833 euros a month. That’s down from 1,350 euros in 2009, according INE-GSEE, the institute of the country’s largest labour union. Moreover, 45 percent of pensioners receive monthly payments below the poverty line of 665 euros, the government says. With more than a quarter of Greek workers jobless, many rely on parents and grandparents for financial support.
“They can take our money, but they cannot take our hearts and souls. We live for our dignity,” Razi said.
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 2012.
With pension spending equivalent to 14 percent of economic output, France’s pensions advisory council estimates the system will run a deficit of 9.2 billion euros by 2020 despite reforms decided already. Attempts by Greece’s EU neighbour Bulgaria, where some public sector workers can retire in their forties, to raise the pension age recently provoked protests.
But Athens is running out of time to find savings acceptable to the European Commission, European Central Bank and International Monetary Fund to seal a deal on unlocking aid it needs to repay 1.6 billion euros to the IMF at the end of June.
Both sides have agreed on a budget surplus Greece should target but not on how to achieve it. The lenders want Greece to make savings on pensions equivalent to about 2 billion euros a year. Greece offered cuts of only 71 million, the lenders said.
Giving ground on pensions would force Prime Minister Alexis Tsipras into a U-turn that could prompt calls for new elections or a referendum. One of Tsipras’s campaign promises was restoring a Christmas bonus for low-income pensioners, although that plan may be postponed.
Previous governments have tackled the problem. Pensions have been cut by an average of 27 percent between 2010-2014 and by 50 percent for the highest earners. The average retirement age was raised by two years in 2013 and Greece has said it is willing to curb early retirement benefits further.
On average Greek men now retire at 63 and women at 59, according to government data. In Germany, the average retirement age for those receiving an old age pension in 2014 was 64 years. But that figure goes down to 61.3 years once those taking early retirement on health grounds is taken into account, according to 2013 data. ($1 = 0.8874 euros) (Additional reporting by Alkis Konstantinidis, Paul Taylor, Holger Hansen, Leigh Thomas and Giselda Vagnoni; writing by Matthias Williams; editing by David Stamp)