(Corrects year to 2060 from 2050 in “COSTLY PENSIONS” section)
June 21 (Reuters) - Greece is putting finishing touches to a major overhaul of its pension system, one of the cornerstones of a policy programme agreed with the EU and the IMF to put its derailed finances back on track.
In a draft law expected this week, most likely on Wednesday, the government will cut pension benefits, curb widespread early retirement and increase the number of contribution years needed to receive a full pension.
Polls show more than 70 percent of Greeks, already hard-pressed by tax hikes and government cutbacks, believe the new system will be much worse for them, said Costas Panagopoulos, at ALCO pollsters.
Here are the challenges faced by the ageing, debt-choked country and the main aspects of the reform — based on what Greece needs to do under the EU/IMF blueprint and assurances by officials from all sides that it will comply.
* 2.6 million pensioners out of population of about 11 million. The proportion of people aged 65 and over will jump from 18.6 percent in 2008 to 31.7 percent in 2060.
* Economic old-age dependency ratio to soar from 43 percent in 2008 to 86 percent in 2060 (inactive population aged 65 and over as a percentage of employed population 15-64).
* Life expectancy: 77.4 for men, 82.6 for women.
* Fertility rate: 1.41 births per woman.
* WITHOUT REFORM: Public pension expenditure seen doubling from around 12 percent of GDP in 2010 to 24 percent in 2050.
- The EU and the IMF project the increase in public pension expenditure will be limited to less than 2.5 percentage points from 2010 to 2060 if the reform is fully implemented.
- The IMF says failing to implement parts of the reform would cost Greece dearly by 2050: i.e. 2 percentage points for not preventing retirement before 60 and not increasing retirement age in line with life expectancy.
* LEGAL RETIREMENT AGE: Introduction of a unified statutory retirement age of 65 years by December 2013 — unchanged for men but 5 years more for women.
* EFFECTIVE RETIREMENT AGE: Greece has said it aims to raise the effective average retirement age to 63.5 years by 2015 from 61.4 now.
* CURB EARLY RETIREMENTS: The reform will aim at increasing the minimum early retirement age to 60 by 2011, including workers in so-called heavy and arduous professions, who draw full benefits despite retiring earlier. Pension benefits will be cut by 6 percent a year for people retiring between the ages of 60 and 65 with less than 40 years’ contributions. Greece must also cut the list of heavy and arduous professions.
* YEARS OF CONTRIBUTION: Gradual increase in the minimum contribution period for retirement on a full pension from 35-37 to 40 years by 2015.
* Pensions will be frozen in 2011-2013.
* Reduce pension benefits by basing them on pensioners’ average pay over their working lives rather than the top 5 out of the last 10 years of earnings.
* Cut the average annual accrual rate to 1.2 percent from 2 percent. This adds up to a basic non-contributory pension which the Labour Minister said stood at 360 euros.
* Christmas, Easter and summer bonuses will be scrapped and replaced by a new flat bonus of 800 euros a year for those receiving less than 2,500 euros a month.
* The IMF says this will lower the replacement rate — the pension as a share of working-life earnings — from an average 75 percent of wages to 60 percent. According to Labour Ministry estimates, the average legal replacement rate will fall to around 65 percent from well above 70-75 percent.
* The OECD, which calculates the replacement rate based on a full-career for a person entering the labour market today, said in a 2009 report that Greece had the group’s highest net replacement rate, at 110.8 percent.
It said Greece had one of the most expensive pension systems but also one of the highest poverty rates among pensioners. “It suggests there is something badly wrong with the Greek pension system,” said Edward Whitehouse, pension expert at OECD.
- EU Commission's Economic Adjustment Programme for Greece: here
- IMF staff report on Greece and MOU: here
- EU 2009 ageing report: here
- Greek Labour Ministry data. (Reporting by Ingrid Melander; Editing by Paul Taylor/David Stamp)