A potential future increase in the Cyprus retirement age has emerged as a new point of contention in pension reform talks, with employers arguing it should be available as an option if the long-term sustainability of the Social Insurance Fund comes under threat.
The Federation of Employers and Industrialists (OEB) raised the issue at Monday’s Labour Advisory Board meeting, attended by Finance Minister Makis Keravnos, as discussions focused on safeguards accompanying the government’s proposed pension reforms.
Under the draft legislation, the sustainability of the Social Insurance Fund would be reassessed five years after the reforms take effect. If necessary, contributions would then be increased.
OEB argues that higher contributions should not be the only option available and that a potential increase in the retirement age should also be included in the legislation.
OEB wants more than one option
OEB director-general Michalis Antoniou said the original basis for the pension reform discussions was that pensions would be increased as far as the Social Insurance Fund could afford, without raising either contributions or the retirement age.
However, he argued that because the proposed legislation explicitly leaves open the possibility of higher contributions in the future, an increase in the Cyprus retirement age should also be available if the fund’s sustainability is at risk.
“Since it appears that, with the improvements being promoted, there is a possibility, which is explicitly recognised in the bill, that contributions may be increased, OEB said today that, in addition to the possibility of a potential increase in contributions, the bill, when passed into law, should also provide for a potential increase in the retirement age,” Antoniou said after the meeting.
“Both possibilities, if and when the sustainability of the Social Insurance Fund is at stake, should be potential tools. Not only an increase in contributions, but an increase in contributions and/or the retirement age.”
Chamber says all factors should be considered
Cyprus Chamber of Commerce and Industry (KEBE) secretary-general Philokypros Roussounides was asked by Economy Today whether he supported a higher retirement age if an actuarial study identified concerns over the Social Insurance Fund’s sustainability.
He said all relevant factors would need to be considered.
“It was one of the issues discussed even before the whole reform process began. If another scenario emerges from the final outcome, we will certainly have to examine all the parameters so that public finances and the sustainability of the Social Insurance Fund are safeguarded, while ensuring that the reform as a whole is socially fair,” he said.
Trade unions reject higher retirement age
Trade unions, however, have made clear that they will not discuss an increase in the retirement age and insist that negotiations should remain within the framework originally agreed for the reform.
“We have repeatedly stressed that we will discuss neither an extension of the retirement age beyond the agreed framework set out in law nor an extension of contributions, and we want a reform that creates prospects and security for both current and future pensioners,” SEK deputy general secretary Panikos Argyrides said after the meeting.
Both SEK and PEO are concerned that changes could be made to the terms on which the reform dialogue began and say they would not accept such a development.
“If one of the members of the Labour Advisory Board raises the issue of increasing the retirement age or increasing contributions, that violates the framework that was established,” PEO general secretary Sotiroula Charalambous said.
“PEO will not agree to an increase in the retirement age.”
DEOK also opposes increases to either the retirement age or contributions.
“We certainly do not accept either an increase in the age limit or in contributions, which have already been determined until 2039,” DEOK president Stelios Christodoulou said.
“There are many parameters which at the moment remain expectations, such as investment policy. We need to specify the steps and the legal framework.”
Economist points to ageing population
Economist Dr Marios Clerides told Economy Today that the retirement age was perhaps the biggest challenge facing the pension system.
He pointed to rising life expectancy and an ageing population as factors placing additional pressure on the system.
“Are we going to have young people working to support the elderly? And, ultimately, they are not all elderly,” he said.
Clerides cited Germany, where he said the retirement age is 67, arguing that retirement thresholds should be adjusted in line with changes in life expectancy.
He also addressed the 12% penalty imposed on people who choose to retire at 63, saying he opposed both its abolition and any reduction because doing so would effectively create an incentive for early retirement.
In his view, exceptions could be considered for people in physically demanding or hazardous occupations, allowing them to retire earlier without penalties. Similar provisions could apply to people unable to continue working because of serious injury or health problems.
Fewer workers expected for every pensioner
Economics professors Petros Loiz and Nikolaos Antonakakis have also highlighted the pressures created by an ageing population in a system where contributions made by today’s workers largely finance benefits paid to today’s pensioners.
They said the ratio of workers to pensioners is expected to deteriorate as life expectancy rises and the proportion of the population of working age declines.
Citing Eurostat data and the 2024 Ageing Report, they said the old-age dependency ratio, measuring the population aged 65 and over relative to those aged 20 to 64, is projected to rise from 26.7% in 2022 to 42.1% in 2050 and 55.5% in 2070.
At the same time, life expectancy at age 65 is projected to increase by 4.6 years for both men and women.
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