Martindale Retrospectives 5 August 2024 Retrospective on Anjan Gupta, “Greek Pension Reforms: The Struggle to Build a Sustainable Bridge to Retirement” from Greece: The Epic Battle for Economic Recovery Perspectives on Business and Economics, Volume 30, 2012 Ankit (Anjan) Gupta '12 is co-founder of Beacon Community, in Gurgaon India, a VP at Global Impact Partners, and serves on the board of Prismflare, a blockchain payments firm he co-founded. Gupta analyzed the historical roots of the Greek pension system and how and why the system evolved as it did. Has Greece had more pension reforms since the article was published? Greece passed pension reform laws in 2016, 2017, and 2022. The reform in 2016 included uniting all insurance funds under one agency, splitting the main pension into a national pension and contributory pension, and instituting equal pension rights and a measure for the containment of pension expenditure (Ziomas & Theodoroulakis, 2016). The pension system was composed of three pillars: government-financed universal old-age benefits, an earnings-related benefit with a 20% contribution rate, and a notional defined contribution (NDC) with a 6% contribution rate (Altiparmakov, 2022). While this reform had its shortcomings, it was overall well received because the reform served its purpose of improving pensions by eliminating inequalities related to crucial aspects of pensions, such as funding, coverage, and level of benefits (Ziomas & Theodoroulakis, 2016). A 2017 reform was adopted to stimulate growth and employment and spur intergenerational equity. It would have also reduced pensions for 1.4 million existing retirees and produced a budget savings of 1%of GDP. But, due to a lack of political will, it was abandoned in 2019, a few days before it was to become effective. Despite this, by 2019 the pension system was mostly consolidated and on its way to fiscal viability. Then in 2019 there was a change in the ruling party of Greece and another review of the pension system occurred. The 2022 pension reform changed a critical policy of the 2016 pension system: instead of an NDC, there was now a defined contribution, and a portion of current contributions was carved out to fund individual pension savings accounts, reducing funds available for paying existing pensions. The aim of this new pension system was to assign a dedicated government body to the management of individual pension savings to try to remedy inherent market failures in private pension provisions (Altiparmakov, 2022). Has Greece established a sustainable pension system since 2012? Unfortunately, the pension reform of 2022 undid the good of the 2016 reform. Court rulings and politics continue to play a large part in the pension system. The 2022 reform is a major shift. Diverting funds to individual pensions without accompanying austerity measures gives rise to a suboptimal pay-as-you-go approach, requiring that existing pension obligations during the transition be paid out of tax revenues rather than pension contributions. Greek policymakers underestimated the multidecade journey needed for the pension system to reach stability (Altiparmakov, 2022). Compared to other countries that have adopted the carve-out funding approach, Greece’s typical age for voluntarily opting into the funded pension system is 35, whereas it is about 50 in the other countries. This fact alone will cause transition costs to be more backlogged, which could be a positive if it allows time for the new system to gain public support. In the short term though, without a funding injection this new system is not sustainable during the transition, which would undoubtedly create fiscal distress for people entering retirement. However, the distress can be avoided if there is a political commitment to finance the transition costs (Altiparmakov, 2022). In addition to fiscal distress, the reform might create economic tension if the new system does not outperform the previous NDC mechanism, which could foment uproar for reversing the reform regardless of the actual fiscal situation (Altiparmakov, 2022). References Altiparmakov, N. (2022, March). The 2022 Greek pension reform: Rebirth of carve-out privatization in Eastern Europe (Working paper: 208/22). Center for Research on Pensions and Welfare Policies. Ziomas, D., & Theodoroulakis, M. (2016, July). The new Greek pension reform: improving governance and ensuring sustainability (European Social Policy Network Flash Report 2016/63). European Commission. Retrospective by Isabel Carino-Bazan ‘25 Molecular biology and economics
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