By Demetris Georgiades
In recent weeks, the Cyprus Employers and Industrialists Federation (OEV) has voiced concern over planned across-the-board increases in lower pensions through the Social Insurance Fund. The concern is not misplaced. Any additional burden on the social insurance system raises questions about the sustainability of public finances, contribution levels and business competitiveness.
At the same time, a number of employers, broadly aligned with OEV, have expressed reservations about the possible introduction of mandatory – or quasi-mandatory – participation by employers and employees in occupational pension funds, citing the additional cost this would entail.
Each of these positions, taken in isolation, has its own logic. However, when both are advanced by the same actors or circles, the contradiction becomes clear and should at least give cause for reflection.
On the one hand, there is opposition to strengthening low pensions through the public system, namely the first pillar. On the other, there is resistance to expanding occupational pension savings through compulsory contributions, which could in time reduce the need to support low pensions via the first pillar.
For more than 15 years, some have warned that the issue of pension adequacy must be addressed early. Yet many employers and employees, along with the trade unions that represent them both, have effectively settled for inaction. The reason is simple: everyone is comfortable when the cost is passed on to the next generation, whether of employers or workers, or, worse, to today’s new pensioners.
In reality, both sides have been aligned on this issue. They were and remain on the same side. The other side is the younger generation, employers and employees alike, who are not currently at the decision-making table and, unfortunately, appear to lack meaningful representation.
Demographic reality is unforgiving. The population is ageing, life expectancy is rising and the ratio of workers to pensioners is declining. The pay-as-you-go system of the Social Insurance Fund will come under increasing pressure. At the same time, the absence of sufficient occupational pension schemes leaves many workers exposed to the risk of poverty in retirement.
When we reach the breaking point – and in some respects we already have – the options will be limited:
• accept that a large number of pensioners will live in financial hardship
• pay higher taxes, whether as businesses or employees, to support pensions
• attempt to turn back time and do what should have been done earlier, namely persuade employers and trade unions to support a robust system of occupational pension coverage
Public debate needs more honesty. It is not enough to reject both increases in low pensions and mechanisms for building additional retirement savings through contributions, participation and a more effective institutional framework. What is needed is a clear and coherent proposal on how to ensure a dignified standard of living for future pensioners.
Because the real question is not whether there will be a cost. The question is who will pay it.
