THE GOVERNMENT will continue monitoring the impact of the financial crisis on social security and pension plans Labour Minister Soteroulla Charalambous has said.
Charalambous said that the dominant challenge for the pension system in Cyprus is the ageing population
The minister said public pension expenditure is estimated to increase from 6.9 per cent of the GDP in 2004 to 15.5 per cent by 2050, putting enormous pressure on public finances.
“The main challenge the General Plan for Social Insurance of Cyprus is facing is the increased risk of poverty for the population aged 65 and over”, and assured that the government will improve the living standards of the low income strata of the population to fight social exclusion and poverty.
Charalambous said that: “The aim of the government social policy is to ensure the financial viability of public and private pension systems, taking into account the pressures on public finances and aging populations” said.
The Labour Minister added “the current financial crisis has had adverse effects on social security – and especially the pension systems – in different countries in different ways, including lower investment income, reduced income due to lower charges and higher costs like the rising unemployment”
“In Cyprus, the global financial crisis has not directly influenced the General Plan for Social Security yet. It operates effectively on a distributional basis and aims to provide adequate pensions. The only indirect and long-term impact that the global financial crisis could have in the case that the statistics worsen is the wider impact on public finances”.
According to Charalambous, the global financial crisis had a small direct impact on the pension benefits of the defined contribution funds and the defined benefit plan, adding that, “while in other countries the insured have had pension losses of forty and fifty per cent, in Cyprus, the impact was minimal because the pension funds are invested in safe investments and the amount of the actual investment value, such as shares is relatively low.”
“The competent authority in Cyprus is monitoring the management of pension funds, including investments, and may intervene when the management does not agree with the investment principles and rules that are established in the legislation”, Charalambous said.
He added that regarding the investment policy of the Social Security Fund, the government proposed to the social partners to reduce the existing “not real” reserve of the fund, which invested in non-negotiable government bonds, and create a “real” reserve which will be administered by an independent professional outside of central government administration with a more active role by the social partners.
Charalambous said that: “Our social partners have recently accepted this new investment policy framework which relies on international investment and best management practices”.
