Friday, 6 May 2016

Half of €327bn Greek debt incurred by pensions

Syriza on Thursday made public the figures on which it is basing its controversial pension bill. The bill goes to parliament tomorrow, to face a vote on Sunday night. 

The figures reveal that since 2000, governments have subsidised main pension funds to the tune of €154.4bn - making them responsible for almost half the Greek debt of €327bn. The system currently absorbs a quarter of all tax revenues, and is by far the biggest state expenditure.

The bill’s most controversial provision is to raise pension contributions to 20 percent of income this year, rising to 24.5 percent in 2020, for all people in work. This represents only a slight drop from the original proposal of 27 percent, which unions emphatically protested against, and unsurprisingly it doesn’t appease them. 

Syriza made pensions one of its most important priorities when it came to power in January 2015. It adamantly refuses to reduce main pensions, though it has sacrificed a corollary policy to support supplementary pension funds from the national budget. These were set up by professional guilds beginning in the 1920s, and in the 1980s the state agreed to underwrite them.

Greece's creditors, the International Monetary Fund and Eurozone, have made reduction of pension expenditure a red line if they are to keep disbursing an €86bn loan Greece needs to stay afloat. The only parameters therefore left to adjust - other than raising the retirement age to 67, which was done in 2012 - was to raise contributions. 

The figures make interesting reading:
  • Pension funds’ viability was undermined by high unemployment during the 2008-2016 economic crisis, which still stands at 24 percent. 1.1mn people lost their jobs during this period. As a result, just 3.7mn people are in work, out of a total population of 10.8mn.
  • Average incomes fell by 25 percent during the same period, further undermining contributions.
  • The result of these shifts is that contributions to main pension funds fell from €11.5bn in 2009, to €9.1bn last year.
  •  Pensioners have increased in number, straining available resources. In 2008, Greece had 2.3mn pensioners. Today there are 2.65mn, and a further 144,000 have applied for a pension.
  • It didn’t help matters that main pension funds were among the biggest holders of Greek debt when the government forced a write-down on them in 2012. This reduced their wealth by €11.8bn, or 46 percent.
  • The Labour ministry estimates total spending on pensions, from contributions and top-ups from state coffers, at €30bn last year, or 17 percent of GDP. It estimates that left unchecked, this will rise to €32bn in 2019. The government’s share of this expenditure is over half - €16.3bn last year, rising to well over €17bn in 2019 if unchecked.
  • Under Syriza’s reform plan, total national pensions expenditure would remain at €30.8bn, saving the government approximately €3.4bn over the next four years. The government says it will achieve this by streamlining benefits across the pension system. The country’s 13 main pension funds currently preserve their different entitlements schemes. Under the bill, they would be consolidated. 
The sources cited for these figures are ELSTAT, the Labour Ministry and KEPE. 

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