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Greece’s new model: “Flexible Pensions” based on family “assets & income criteria”

Nothing will be ever be the same after the thorough overhaul – call it “structural reform” – of the Greek social security system. Τhe working years aka social security contributions will rise but at the same time the monthly pension amount will dramatically decrease. I do not know how long the members of the so-called Wise Committee that produced the 28 document of findings had been working on it. But they sure triggered a justified outrage.

Flexible National Pension with Yo-Yo Effect

Basic for the new pensions system will be a so-called “Flexible National Pension” of €300 or €400 per month gross and this will not be a stable constant as it will depend on the reserves of the social security funds. In addition another pension will be given based on the contributions the pensioner paid to funds his working life. the payments will be flexible depending

  1. on the reserves of the Funds
  2. on the social security contributions pad by the pensioner when he was working
  3. on the pensioner’s  family “assets and income”.

Proposed is a flexible national pension, which will be staggered depending on the amount of proportional pension (based on s.s.contributions) and the family members. That is, the national pension will be reduced if the contributions pension increases and if also the pensioner’s individual or family income increases.

I assume that if the wife or the grown-up children of the pensioner earn money, his pension will be decreased? Since when are pensions not individual but … collective? Or if a pensioner gets rid of a property and puts the money in the bank his pension will decrease? Will he get 200 euro pension if he has income form rents this year and increase to 400 if he has no rent next year? And who will manage this flexible system? Which authority? Which software algorithm?  And what what kind of delays? Based yearly on tax declarations?

A family pension, so to say? A yo-yo effect causing irreparable damage to the  brains cells of the committee members who could no longer stand to be wise? I never heard of such an insane proposal before in my whole life.

However, “the committee members admitted that their report did not include special provisions for those working in ‘heavy and unhealthy professions,’ for the disabled or for pension for widows.” Of course, they didn’t. The had to calculate all the years people remain ‘unemployed’ due to economic crisis.

Pensions Cuts of 13% 0 17%

The Pensions Reform will affect also people who are already pensioners. Cuts will start from 3% for current pensions of €700 per month and reach 7% for pensions over €1,800 per month.

The pensions will not exceed 45%-55% of the salary or wage. As the final Pensions Reform will be concluded in November, I cannot tell with certainty whether this cut will affect also those who are already pensioners or the new ones. If yes, this will mean another cut of at least 10%.

Tax Office to collect the money

Another ‘revolutionary step” of the Reform is that the social security contributions will be collected by the tax authorities and not by the Funds. Tax authorities will forward the amounts to the Funds.

Already a mess, while pensioners wait up to 3 years

The Pension Reform has already created a real mess in the social security Funds that calculate the pensions according to old models. They will have to apply 3 calculation models for pension application submitted until 30. August 2015, as of 1. September 2015 and for the new comers who will apply after 1. January 2016.

I expected an even bigger mess when pensioners have had contributions to several social security Funds. These poor men and women have been waiting of up to 3 years for the Fund to issue the final amount of pension (main and supplementary).

Example: A neighbor of mine has been waiting since December 2012 for her pension to be officially issued.  She has been receiving the so-called provisional pension, some €420 net per month – approximately 70% of the official pension (main and supplementary) amount. Last month, she saw 10 euro less because of the health security increases for pensioners.

When she submitted her papers, her lawyer had calculated that her pension claim was based on 27 years of work – IKA & OAEE stamps as employer and self-employed  – years of unemployment not included – and that her main & supplementary pension would amount 650-680 euro per month. But on Wednesday, when she visited the Fund to check about the delay, she realized that her pension would come down to just 480 euro due to the delay and the reform. 200 euro less than expected. She also found out that she has to appear before a Special  Committee that will confirm that she has no disabilities of any kind.

The woman is 60 years old. She was unable to get a job after 2010. She was forced to go into early retirement. She has no home of her own and no other assets. Although officially her current income is blow the poverty line, she has no right for official aid as the welfare system has collapsed. She depends on the aid of relatives and friends to get along.

“The cuts are expected to deprive some 800,000 pensioners of approximately one pension per year,” Greek media have been reporting since last night.

A joke: Funds, PSI & 25% Unemployment

The Pensions Draft Reform has been submitted to the Labor Ministry by a so-called  “Wise” men and women committee assigned to clear the mess and avoid the Funds collapse on long term. The 12 wise members are academicians, labor experts and judges.

“Greece must crack down on undeclared work, create more jobs, merge its pension funds and unify contribution rates to revamp its ailing pension system, a committee set up to find ways to make the system viable said on Thursday,” Reuters described the aim of the Reform.

The general impression is that the state will withdraw from funding part of the pensions.

The Pension Reform is expected to go into effect as of 1. January 2016 and conclude by 1. January 2017.

The publishing of the Wise Committee Draft triggered an outrage in the society, trade unions and other interest groups, especially vulnerable groups of the society like chronic-ill and long-term unemployed. Labor Minister Giorgos Katrougalos tried to calm down the anger saying that ‘the Pension Reform is just a proposal and has not finalized yet.’

Meanwhile, some older workers, employees and self-employed wonder about the contributions they have paid all these years. They probably forget the Greek Bond Swap (PSI) of March 2012 that had the reserves of the Greek Social Security Funds trimmed down.

Yesterday or the day before, I saw the former IKA Fund director Rovertos Spyropoulos (PASOK) pledging to the jobless to “turn down undeclared jobs without social security and taxes.”

Right! He had absolutely no alternative on how people will eat and pay their obligations. He had probably also forgotten that 1:4 Greeks are unemployed with the majority of them “long-term”, that 1:2 Greeks below 25 has no work or job and that there is no welfare state. With these unemployment figures, the young generations should work at least until they are 70 years old to fulfill the preconditions of 40 working years.

Just a reminder: 2/3 of the 3. bailout Prior Actions are unfulfilled remains of  MoU I and MoU II bailout programs that Papandreou (PASOK) and Samaras (NEW DEMOCRACY) governments had failed to implement. The Pensions Reform belongs to these two-thirds. I remember very well the 2011 (?) for a basic National Pension of 300-360 euro. It must have been under Papandreou gov’t. I’m just too exhausted after writing this post to search in KTG’s archives.

PS if pensions are to be given according to assets & family income criteria I propose that also MPs and Ministers and high-ranking officials get paid also according to the same criteria. If they have assets (property, deposits, other sources of income), they should be paid the … difference. Or even better: work on 100% voluntarily basis.

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  1. Absolute mess. Let’s see what happens.

  2. I agree, the tax authority should collect pensions as IKA is completely stupid.