Cyprus

February 21, 2007

Over half of Cypriot pensioners are living on the poverty line, with the income of people aged over 65 the lowest in the European Union.

An EU report on social protection and inclusion shows the risk of poverty for the general population was 16 per cent in 2004, comparing well with the EU average. For the age group over 65, the risk of poverty (51%) remains troublesome and is as high as 73 per cent for single, elderly people.

Labour Minister Antonis Vassiliou admitted that pensions are low, ranging from £197 to £300 per month.

“We should not avoid the fact that there is a problem,” he said. “I have previously stated that there needs to be an increase and since the beginning of the year we have topped up the average pension by 3.14 per cent.

“By the end of 2007, the aim is to further help people in need, but massive rises are not possible as we must work within an economic framework.”

Pambis Kiritsis, General-secretary of the PEO union, which includes the Union of Cypriot Pensioners, explained that pensions are low due to the fact that the social insurance fund is relatively new to Cyprus, meaning it has not yet matured.

It is expected to do so by 2020.

According to the union, contributions could also be greater.

“We must now look into other alternatives as we cannot rely solely on this fund,” he said, adding that PEO is against increasing the age of retirement.

When told of the report, an official at the Welfare Department simply said: “There are a lot of reasons for the figures for Cyprus but they are not about people being hungry. You don’t see people on the streets here like you do in other places in Europe.”

Additional assistance is given by the Welfare Department for those with an especially low income. There is also a Welfare contribution “according to needs”, where the state pays rent or electricity if someone can’t afford it on their income.

The EU report also assessed Cyprus as a high-risk Member State as regards the sustainability of public finances, notably due to the high projected increase in age-related expenditures and the high level of debt.

According to projections, Cyprus is expected to increase its spending on public pensions (including public sector employees’ pensions) from 6.9 per cent of GDP in 2004 to 19.8 per cent of GDP in 2050. The projected growth of 12.9 percentage points of GDP is the largest in the EU and will exhaust the reserve fund by about 2040.

The value of minimum pensions (85% of the full basic old age pension), and social pensions (81%) for people aged over 65, do not protect against the risk of poverty. Reforms under consideration refer mainly to the social insurance fund and include a gradual increase in social insurance contributions, an increase in the minimum qualifying period for pensions and the re-examination of pension entitlement between the ages of 63 and 65.

To tackle the problem of pensioner poverty, the government intends to carry out a study on the possibility of fixing a minimum income targeted at those households at most risk of poverty, replacing the current inefficient supplementary Special Allowance Scheme to pensioners. A further study on the possibility of developing a second pillar, with defined contribution provision for those not covered by occupational pensions, is also envisaged in 2007.