At the end of June 2011, Greece approved changes to social security as part of a 5-year (2011-2015) austerity plan to secure EUR 12 billion (USD 17 billion) in loans to meet the country's debt obligations through August 2011. Foreign lenders (European Union, European Central Bank, and International Monetary Fund) demanded passage of the austerity measures to enable Greece to avoid default.
Under the austerity package, cuts in social security benefits are expected to amount to EUR 5.1 billion (USD 7.3 billion), from 2011 through 2015. Key pension-related measures of the plan to reduce expenditures include the following:
- Expand means testing of the old-age social solidarity grant (currently based on income only) to include other assets.
- Reduce lump-sum retirement payments by at least 10 per cent for civil servants and public enterprise employees, starting in 2011. (Future studies are expected to identify where these distributions may be out of line with contributions and identify possible adjustments to link these lump-sum amounts with contributions.)
- Extend the freeze on mandatory public pensions (approved in last year's pension reform and originally scheduled for the 2011-2013 period) to 2015.
- Reform the disability pension system (beginning in 2011) with the objective of reducing spending for disability pensions-now 14½ per cent of overall pension spending-to 10 per cent, with the government enforcing more rigorous (re)certification of disabilities and establishing a central evaluation office.
On the revenue side, the austerity plan calls for increases in social contributions amounting to EUR 3.2 billion (USD 4.6 billion) over the 2011-2015 period. Increased revenues are expected through employing the following measures:
- Full implementation of a single unified payroll and insurance contribution payment method intended to reduce evasion and to collect more social security contributions.
- An increase in contribution rates (details to be announced) for social security funds covering farmers and certain salaried professionals (primarily doctors, lawyers, and engineers).
-Establishment of a solidarity fund for self-employed beneficiaries.
- Introduction of unemployment insurance contributions for the self-employed and for public-sector employees (including state-owned enterprises, local government, and other public entities).
Despite past mergers of pension funds, the Greek retirement system remains complex and fragmented. Benefits are considered generous relative to wages and are often claimed before age 60. Critics assert that the benefit structure offers little incentive for older workers to remain in the labor force, especially for low-income workers, whose minimum pensions are not reduced for early retirement.
This article was extracted from the United States Social Security Administration publication International Update, August 2011.
Source: "Greece," International Update, US Social Security Administration, August 2010; Hellenic Economic Policy Programme Newsletter: From May 2010 to May 2011, Greek Ministry of Finance, May 19, 2011; "Greek Government Austerity Measures," BBC News, June 30, 2011; "Greece: Fourth Review under the Stand-By Arrangement and Request for Modification and Waiver of Applicability of Performance Criteria," International Monetary Fund, July 2011; "Greece Implements Austerity Plan Including Social Security and Health Spending Cuts," Select News, July 1, 2011; "Greek Government Austerity Measures," Reuters, July 4, 2011.
Legislation date: 06.2011