Greece’s pension system will undergo a significant change on January 1, 2022, when funded supplementary pension body TEKA begins operation.
The bill creating TEKA has cleared the parliamentary committee stage and is expected to be voted by the full Parliament as soon as it reconvenes on August 23.
The change will not affect most current employees. But for those who enter the market in 2022 and beyond, the government claims it will mean that they are guaranteed to get full value for their pension contributions and maybe more if their individual investments in TEKA achieve high returns.
This is a big transition from the system where the current employees essentially pay, through their contributions, for the pensions of retirees, many of whom took advantage of favorable treatment to retire early on full pensions, until the financial crisis forced an overdue reckoning with the viability of the system.
Transitioning from one system to another cannot be done overnight, or without cost. So there is an unavoidable transition cost, which will fall on all taxpayers, and which the opposition has been quick to use as a cudgel to beat the government with.
Some put this cost as high as €80 billion over the following 50 years. But Deputy Labor and Social Affairs Minister Panos Tsakloglou, an economist, has presented a far more rosy cost estimate of €120 million per year and chides the opposition for not taking into account the revenue created by the added investment-fueled growth.
In 2022, new job market entries will join TEKA. In 2023, employees aged under 35 can transfer to TEKA, if they already participate in the existing supplementary pension scheme, or join it if they do not. Joining is voluntary, not mandatory.
TEKA will cover insurance risks from old age, disability and spousal loss. Compared to the existing supplementary pension system, it introduces two innovations: First, if insured employees have fewer than 15 years of insurance in TEKA at the time of retirement, all contributions to the fund are returned; second, there is a minimum disability or death pension provision that does not exist in the current system.