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Greece – Expenditure on social protection and pensions

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Greece Macro Monitor (21.03.2017)

Greece – Expenditure on social protection and pensions: How generous is it by international standards and relative to the rest of the EU?

1. For a couple of decades before the outbreak of the Greek sovereign debt crisis, Greece’s pension expenditure recorded fast growth on the back of rapid wage increases as well as generous benefits and options for early retirement. Relative to the other two euro area economies with worst demographic prospects, Greece’s annual growth of pension expenditure in 1991-2009 averaged 8.3% compared to 3.8% in Italy and 3.6% in Germany.

2. These developments along with exceptionally adverse demographic trends led OECD in 2007 to characterize Greece’s pension system as a “fiscal time bomb”. According to Eurostat data for 2014 (latest available) there was only 1.3 persons employed per pension beneficiary in Greece, the lowest ratio in the EU-28. Furthermore, Greece’s old age dependency ratio (population aged 65 and more to population aged 15 to 64 years) was projected to increase sharply in future years, reaching by 2060 levels significantly higher than the EU-28 average as well as the respective ratios in other EU economies (e.g. Italy and Germany) featuring adverse demographic trends. In the same vein, as per the most recent available data (Helios database, July 2015), around 31.4% of the total bill for old age, survivors, disability and other pensions was received by persons aged below 65 years.

3. In view of these challenges, significant pension reforms have been implemented in the context of Greece’s three consecutive stabilization programmes. After the 2010 reform, which has been characterized by the IMF as “comprehensive”, two other major reform efforts followed in 2011-12 and 2015-16, with a view to reduce mediumand long-term costs and tackle a number of structural deficiencies in the Greek pension system.

4. In more detail, the said interventions aimed to, inter alia: increase early and statutory retirement ages, tighten early retirement rules, increase the required years of contributions, harmonize main pension contributions at 20% for all employees, introduce a single uniform benefit rule for both existing and new retirees, engineer selective cuts of supplementary pensions for pensioners with total pension benefits above €1,300/month, freeze supplementary pensions for as long as the funds remain in deficit, eliminate third-party charges used to finance self-employed pension funds deficits and transform the social security contribution base for self-employed from notional to actual earnings, subject to a minimum income limit.

For the full study viewers please see attached document herebelow: GR PENSION EXPENDITURE 22.03.2017 (final)

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