The case for a capital-funded system to augment pay-as-you-go redistributive supplementary pension schemes in Greece was outlined in an article by former minister and Athens University professor Tassos Giannitsis in the newspaper “Vima tis Kyriakis” on Sunday.
“Under current conditions, the most important reason for establishing a capital-funded system for supplementary pensions is intergenerational justice and the introduction of legislative measures that ensure the faith of future pensioners that they will have a supplementary pension and that this will be fair,” Giannitsis said regarding a draft labour ministry bill that intends to introduce such a reform.
“The current system for supplementary pensions is based on that the amount that total contributions represent each year is equal to the amount that has to be paid each year in supplementary pensions. This means that for every new group of pensioners the sum of the supplementary pension as a percentage compensating for a worker’s salary tends to decrease. In fact, it may even tend to decrease as an absolute amount in relation to the contributions that they have paid in,” he said.
According to Giannitsis, a capital-funded system will ensure that the real total amount of pensions will not be less than the sum of the contributions that pensioners have paid in.
He stressed, however, that a system based on capitalisation will be vulnerable to the repercussions of instability in the international financial markets, which will also be linked to the stability of the national pension system and economy.
Up until 2008, Giannitsis pointed out, “we had become used to having a higher GDP, salaries and pensions each year, largely due to a growing resort to international loans and overborrowing. Now, however, we are in a phase where due to various reasons (climate change, ageing population in many countries, low birth rate, pandemics etc) it is already ‘normality’ to have negative or marginal rates of growth while the country’s borrowing continues to climb. We should think of the problems that arise for a redistributive pension system if for reasons of ageing, climate change and others, the economy reaches low growth rates.”