Pension reform legislation to be tabled by June

The government said on Monday it hopes to table legislation reforming the pensions system by June so the reform kicks in as of January 2027.

Labour Minister Marinos Moushiouttas was taking questions from MPs while discussing the ministry’s budget for this fiscal year.

The discussion quickly turned to the pensions system and the Social Insurance Fund.

For decades, the state has dipped into the SIF for financing, paying it 2.15 per cent interest for the money it borrows.

According to the minister, the state’s accrued debt to the SIF comes to €11.3 billion.

On pension reform, Moushiouttas said the relevant bills would include a timeline on how to gradually repay the government’s debt to the SIF, as well as an investment policy for the funds drawn from the SIF.

He opined that the reform would result in a net increase in pension payouts, but he could not say by how much.

Asked by an Akel MP whether the so-called ‘penalty’ on pensions would get scrapped this year, Moushiouttas said likely no.

The ‘penalty’ is a 12 per cent deduction on pension payouts imposed on those retiring before 65 if they have completed 40 years of contributions.

Disy deputy Harris Georgiades said the SIF’s cash reserves appear to be on a positive trajectory. This was due to the “good situation” in the labour market, with more people gainfully employed and therefore contributing.

According to the government, the objectives for the coming pension reform are three-fold: increasing pensions, strengthening welfare funds, and ensuring the sustainability of the SIF.

The last major reform on the pension system took place in 1980, with additional changes imposed during 2012-2013 as part of Cyprus’ agreement with international lenders.