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Pathways to a universal basic pension: the case of Greece Manos Matsaganis and Chrysa Leventi Athens University of Economics and Business 13th Basic Income Earth Network Congress Basic Income as an Instrument of Justice and Peace FEA-USP, São Paulo, Brazil 1 July 2010
Slide 1/14 Structure of paper 1. Introduction 2. Tax subsidies to the current pension system 3. The evolution of basic pension ideas 4. Basic pension suddenly back on the agenda 5. Prospects for a universal basic pension Pathways to a universal basic pension: the case of Greece
Slide 2/14 1. Introduction • The Greek pension system is: • Defined benefit, pay-as-you-go • Highly fragmented • Until 2008 pension benefits were paid out by hundreds of social insurance agencies (funds) • In 2008 they were nominally reduced to 13. Practically, not all mergers created uniform regimes among the merged funds • Fiscally unsustainable • Expenditure on pensions: 12.2% of GDP in 2008, estimated to reach 24.1% in 2060 • Propped up by a heavy dose of state finance • Socially ineffective • Poverty in old age (23%) above the European average (20%) Pathways to a universal basic pension: the case of Greece
Slide 3/14 1. Introduction • Inequitable • In terms of inter-generational equity (due to its large deficits) • In terms of intra-generational equity (due to its high institutional fragmentation) • Very resistant to changes • Attempts for significant reforms systematically fail • Main reason: strong trade unions’ opposition Pathways to a universal basic pension: the case of Greece
Slide 4/14 2. Tax subsidies to social insurance pensions • In 2008, tax subsidies to state pensions amounted to €15,090 million (6.3% of GDP or 52.2% of total spending on pensions) • Tax subsidies are intended to fund: • Non-contributory pension schemes 1. Social pension 2. Farmers’ basic pension • Non-contributory top-ups to social insurance pensions 1. Pensioners’ social solidarity benefit (EKAS) 2. Minimum pensions 3. Supplements for dependent spouse and children • Non-contributory components can reach 80% of total pension benefits in the case of a male low earner retiring at the age of 65 with a minimum contributory record (15 years), a spouse and two dependent children receiving minimum pension and EKAS Pathways to a universal basic pension: the case of Greece
Slide 5/14 2. Tax subsidies to social insurance pensions • Tax subsidies are also intended to support social insurance agencies facing financial difficulties due to adverse demographics • However, considerable sums actually find their way to smaller agencies insuring high earners • Characteristic example: indirect earmarked resources • Special surcharges on goods and services, whose proceeds are transferred to the relevant funds • They represent 50% and 37% of total revenue of journalists’ and lawyers’ fund respectively Pathways to a universal basic pension: the case of Greece
Slide 7/14 2. Tax subsidies to social insurance pensions • Privileged groups often defend their generous retirement benefits as deferred wages, “earned” through their contributions during their working life • The estimation of the relative weight of annuities (actuarially fair pensions equating lifetime benefits to lifetime contributions) and transfers (difference between actual and actuarially fair pensions) at individual level shows that this is not really the case • Transfers are quite substantial for a wide range of pensioners and often rise with earnings and actual level of pension Pathways to a universal basic pension: the case of Greece
Slide 8/14 3. The evolution of basic pension ideas • Since the late 1980s proposals for a reformed pension structure, including variations to a basic pension, periodically emerged • In 1987, the socialist government of PASOK first came out in favour of a ‘national pension’, provided to every citizen aged 65 and over as an addition to existing contributory pensions • In 1990, the conservative party’s pension law was presented as the first step towards a broader reform that would lead to a multi-pillar pension system. However, the law voted in 1992 brought in only parametric changes and placed the burden of adjustment on future generations • In 1996, after PASOK won the elections, an expert committee on pensions was set up. Its report, opting for a three-pillar pension system provoked a public outcry. The law voted in 1999 left the structure of the system unchanged Pathways to a universal basic pension: the case of Greece
Slide 9/14 3. The evolution of basic pension ideas • The early 2000s were again marked by the ambitious attempt on behalf of the Socialists to reform pensions. On the same time, two small political formulations also made detailed proposals in support of a multi-pillar pension system • However, in front of fierce opposition on the part of trade unions and public opinion, the attempt failed and the law voted in 2002 removed pension reform from the political agenda • The conservative party’s pension law, voted in 2008, besides consolidating social insurance funds into 13, did not alter the structure of the system Pathways to a universal basic pension: the case of Greece
Slide 10/14 4. Basic pension back on the agenda • In the context of the current crisis pension reform suddenly returned to the top of the political agenda • In return of the €110 billion rescue package agreed with the EU, the ECB and the IMF, the socialist government has signed a Memorandum of Economic and Financial Policies, whose terms include harsh austerity measures and drastic pension reform • The government presented a first draft of the pension reform bill on 10 May 2010. • In a hardly convincing attempt to show that the government is fighting against the IMF, the initial bill departed from the provisions of the Memorandum • The final draft was presented on 25 June 2010 • It sharply raised contributory conditions and the retirement age of current workers Pathways to a universal basic pension: the case of Greece
Slide 11/14 4. Basic pension back on the agenda • The bill provides for a modest basic pension and a contributory proportional pension, both payable from 2015 • Basic pension amounts to €360 (2010 prices) • It is not universal • Contributors with at least 15 insurance years will be able to claim a full basic pension at age 65. Those with at least 40 insurance years can do so at age 60 • Failing that, the basic pension will be available to those passing a second set of conditions concerning residence, income and age • While falling short of full universality, it is the closest to a universal basic pension the Greek pension system has ever got Pathways to a universal basic pension: the case of Greece
Slide 12/14 4. Basic pension back on the agenda • Almost with no exception, political parties have failed to put forward a constructive critique to the proposed pension structure • In a rather superficial (albeit media friendly) way, they have all emphasised the losses compared to the status quo • Possible improvements to the pension bill in terms of efficiency, equity and intergenerational justice have not been part of the political debate • The majority of social actors -and especially trade unions- also denounce the whole basic pension idea Pathways to a universal basic pension: the case of Greece
Slide 13/14 5. Prospects for a universal basic pension • Within this new regime, proponents of a universal basic pension will be able to make their case in a radically improved institutional context • However, it is unfortunate that public opinion might associate basic pension with the emergency conditions that led to its introduction within the context of a very unpopular pension reform Pathways to a universal basic pension: the case of Greece
Slide 14/14 5. Prospects for a universal basic pension • The study of the Greek case can offer two important insights: 1. Social insurance pensions, if heavily supported by tax funding in a non-transparent way, may be ripe for reform. The separation of “insurance” from “assistance” components emerges as an obvious, fair and viable solution. From there, a universal basic pension is one short step way 2. Progress towards a basic income is likely to be gradual and uneven. Even when basic income ideas appear to be utopian for many long years, their time may eventually come – suddenly and unpredictably Pathways to a universal basic pension: the case of Greece