The Cypriot Old Age Security System in 2020

By Athena Herodotou and Constantinos Kombos, University of Cyprus

The evolution of the Cypriot old age pension system has been gradual and incremental. Historically, public old age pensions were introduced as part of the first social insurance system of 1957 – and thus existed even prior to the independence of Cyprus in 1960. However, the system was limited in scope and substantive protection, as it excluded certain categories of workers from compulsory insurance (such as the self-employed and agricultural workers, who constituted the majority of the country’s workforce) and provided only flat-rate benefits based on uniform contribution payments. Since its first implementation, the system has undergone several structural changes. The reform of 1964 extended the scope of persons protected by the system, which subsequently put the system under financial pressure and has periodically led to a reduction of pension benefits which, in turn, boosted the popularity of supplementary (occupational) pension schemes. Later on, the reform of 1980 introduced supplementary earnings-related insurance contributions and adjusted the calculation of pension benefits. Today, a ‘standard level of protection’ against financial risks in old age is achieved via mandatory insurance in the single statutory pension scheme. Public pensions can be ‘topped up’ through benefits from supplementary occupational and private pension schemes in which participation is mostly voluntary. A ‘minimum’ level of protection is guaranteed by the minimum pension of the statutory pension scheme. In addition, the Cypriot social insurance system provides a special social pension for elderly persons with low pension benefits who meet the necessary requirements. Outside the pension system, minimum protection is targeted through general social assistance measures.

Standard Protection in Old Age

All persons gainfully employed in Cyprus, i.e. employees and self-employed workers, are mandatorily insured in the general and public social insurance system (σύστημα  κοινωνικών  ασφαλίσεων), which provides a number of social benefits. The statutory pension scheme  (θεσμοθετημένη  σύνταξη) (also known as old age pension (σύνταξη  γήρατος) before the amendment of 2017) constitutes an integral part of the social insurance system. The scheme is financed almost entirely on a pay-as-you-go (PAYG) basis from insurance contributions paid by the insured person, employers, and the state. In principle, the scheme grants a statutory pension in the form of monthly instalments plus a thirteenth payment made in December of each year. The benefit calculation is based on two components: the ‘basic pension’, which is based on the insurable earnings up to a fixed insurance point threshold for the relevant contribution period, and the ‘supplementary pension’, which is based on the insurable earnings exceeding the threshold of the ‘basic pension’.¹

Top-Ups

The Cypriot old age pension system provides a number of possibilities to top up benefits of the statutory pension. For some specific professional groups such as lawyers, physicians and dentists, participation in fully funded occupation-specific pension plans such as the pension scheme for lawyers  (σχέδιο  συνταξιοδότησης  δικηγόρων) and the  pension scheme for physicians and dentists  (ταμείο συντάξεων ιατρών και οδοντιάτρων) is mandatory by law. Civil servants who entered the public service before October 2011 mandatorily participate in the government employees pension scheme (GEPS) (κυβερνητικό  σχέδιο  συντάξεων). The GEPS was substantially affected by the financial crisis and it has been closed to new recruits in the civil service since October 2011.² Other, fully funded occupational pension schemes (επαγγελματικά συνταξιοδοτικά σχέδια) exist for the economically active population. Since 2020, participation in these schemes has been either mandatory or voluntary and plans are often based on individual or collective agreements. If contributions to the occupational pension schemes are paid entirely by the employer, the employee benefits double. In this case, the employer also takes over a share of the public contributions otherwise paid by the employee into the social insurance system. Another option to top up statutory pensions is the participation in fully funded private pension plans (ιδιωτικά συνταξιοδοτικά σχέδια), which are available to individuals on a voluntary basis. Individuals may create their pension savings account with the conditions of their choosing. The state supports participation in supplementary pension schemes which offer certified pension plans through tax deductions on contribution payments.

Minimum

Relevant legislation provides a minimum pension level for persons qualifying for a statutory pension.³ Additionally, and in order to achieve a minimum level of protection, the Cypriot old age pension scheme provides a social pension  (κοινωνική σύνταξη) for elderly persons who currently reside in Cyprus and have done so for a minimum period of time, who have reached the standard statutory retirement age and who are not entitled to any pension or other similar payment equal to or exceeding the monthly amount of the social pension (calculated yearly on the basis of the ‘basic pension’ of the statutory pension scheme). Outside the pension system, a minimum level of protection is also targeted through general social assistance measures such as the scheme for supporting pensioners’ households with low income(σχέδιο ενίσχυσης συνταξιούχων με χαμηλά εισοδήματα) and the Easter allowance (Πασχαλινό επίδομα). These benefits are not legislatively protected but may be provided annually through decisions of the Council of Ministers, who delegates relevant implementing powers to the Ministry of Labour, Welfare and Social Insurance. These measures lack permanency and are in practice linked to the state of the economy. They are not directly related to the pension system and are financed from the Consolidated Fund of the Republic.

¹ The weekly amount of the ‘basic pension’ equals 60% of the weekly value of the annual average insurance points which have been credited to the insured person's basic insurance during the reference period, and is increased to 80%, 90% or 100% if the beneficiary has one, two or three dependants, respectively. The weekly ‘supplementary pension’ equals 1.5% of the weekly value of the total number of insurance points in the insured person's supplementary insurance. 

² As the government employees pension scheme (GEPS) is closed for new entrants, the scheme is not pictured in the pension map for Cyprus.

³ The institution of a ‘minimum pension’ was initially adopted on 01/11/1985 (equalling 50% of the full basic pension) with the aim to ensure a minimum amount of pension to all pensioners. This amount was increased on 01/07/1989 to 70% of the full basic pension. Since 01/01/1999 it has increased further with 10% being covered by the Consolidated Fund of the Republic (equalling 77% of the full basic pension). Since 01/07/2000 it has increased further with an additional 10% being covered by the Consolidated Fund of the Republic (equalling 85% of the full basic pension).