Four threats to EFKA may lead to pension cuts

Four factors are threatening the new Single Social Security Entity (EFKA) this year and are expected to lead to the activation of the automatic fiscal correction mechanism before 2019.

The first factor concerns the government’s pledge to release main pensions to at least 120,000 retirees who have been waiting to be paid for at least two years. Another threat to EFKA is the course of revenue collection, as there is complete confusion regarding the social security contributions of freelance workers, self-employed professionals and farmers.

The third factor is the inclusion of public sector workers in EFKA, which is sending state spending on pensions to 10 percent of Greece’s gross domestic product, as the International Monetary Fund has noted in its reports. The last – yet significant – risk concerns regarding actual conditions in the labor market, which has already seen a huge increase in flexible forms of labor.

The social security law introduced by former labor minister Giorgos Katrougalos includes three mechanisms that automatically lead to cuts to existing pensions, besides the reductions to come from the way new pensions are calculated. A key part in this is played by a clause added to the 2010 law on the state’s commitment that spending on pensions must not exceed 16.1 percent of GDP until 2060.