Pension Payments To Outstrip Contributions By 2050
If the government does not continue to reform the pensions system, spending on it will almost double by 2050, outstripping contributions and making it among the most expensive schemes in the EU, according to an IMF article written by Alejandro Sergio Simone.
Spending on pensions is currently at nine percent of GDP (around 1.5 billion euros) and is projected to rise to 16.5 percent by 2050, according to the article.
One of the underlying problems is the relatively early age of retirement in Cyprus. At 63 years, it is lower than Denmark's 67 years, but higher than Spain and Greece's 60 years. All things considered, the effective average retirement age is actually around 57, says Simone.
Raising the retirement age could help to save money in the long run, but the most important reform is in the public employees' contributions. Lump sum benefits should be gradually eliminated and public workers should contribute an overall 10 percent from the current five percent to the pensions fund, according to the article.
Senior government officials, MPs and public educators receive special pension benefits, further boosting costs to the state, says Simone.
Teachers, the police, and the army constitute the bulk of public employees in government and these groups are subject to lower retirement ages than civil servants and private sector employees, says Simone.
In August, there was some reform of the pensions system after Parliament passed a controversial permanent three percent rise in pension contributions from the public sector, excluding judges and air traffic controllers.
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