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Draft pension reform bill expected to include cuts to auxiliary benefits, raise contributions

By Stelios Papapetros

A draft bill on pension reform, abruptly announced on Tuesday, will include most of the adjustments reported over the past few months in negotiations between Athens and institutional creditors, with the relevant minister promising that primary benefits will not be cut, while only “8 to 10 percent” of supplementary pensions will be affected, i.e. reductions.

The draft bill, along with another piece of legislation on tax measures, was announced on Tuesday and will be tabled in Parliament without lenders’ prior approval, as the leftist Greek government is apparently now aiming for a “political solution” in order to achieve a coveted first review of the Greek program (third bailout). Negotiations with lenders, despite steady proclamations of “progress” over the past month, failed to conclude this past week, with the venue now shifted to Washington D.C., where the IMF hosts its annual spring meeting this weekend.

Specifically, the draft bill will reportedly include the provision for a “national pension” of 384 euros for 20 years of social security contributions, without any income criteria. For 15 years of contributions, the monthly rate will be reduced by 10 percent, i.e. 345 euros.

The rate of recoupment – reciprocity by future recipients — will start at 0.77 percent for the first 15 years of social security coverage and conclude at 2 percent after the 42nd year of coverage.

Cuts in supplementary pension rates are very likely, although Minister Giorgos Katrougalos told a press briefing that decreases will not be made from the very first euro of benefits. He also promised that such benefits would not be made on recipients with “low to medium” monthly incomes. Nevertheless, he did not rule out reductions of “higher” supplementary pensions.

The so-called “social solidarity bonus”, known by its Greek abbreviation of EKAS, has already been targeted for elimination by 2019, although the latest reports hold that it will gradually be eliminated starting this June. Some 20 percent of beneficiaries of this bonus – who total 380,000 recipients today – will be affected in the first stage of its elimination.

Other reports claim the Greek government and lenders have agreed over a 1-percent increase in monthly social security contributions paid by wage-earners and their employers, down from the 1.5 percent hike that the government initially proposed in order to keep pensions intact at the expense of employed persons and businesses’ payrolls. The increased monthly contributions would be in effect tor three to six years, according to reports. Creditors have appeared weary in the past of allowing more burden to be placed on the cost of doing business in Greece.

Meanwhile, Economy Minsiter Giorgos Stathakis appeared optimistic that a compromise will be reached with creditors by April 22 over the still unresolved issue of non-performing loans in the country.

Creditors want NPL portfolios to be eligible for sale and subsequent management by distress funds, while Athens has proposed numerous exceptions on practically all types of “bad loans”. Stathakis also officially confirmed that lenders want performing loans included in portfolios, a standard practice overseas to make the latter more valuable and attractive to investors.