Fiscal council chief urges caution over social insurance fund reserves

Nicosia, Cyprus. Fiscal Council chairman Andreas Charalambous has urged the government to act responsibly in plans to invest the social insurance fund’s cash reserves, warning against actions that could endanger the fund.

He said returns should be assessed realistically, given that investments must carry low risk.

State borrowing from the fund

Speaking to the Cyprus News Agency on Thursday, Charalambous said the planned end of state borrowing from the social insurance fund, and repayment of amounts already borrowed, should be carried out gradually to avoid the risk of a financial crisis.

“As a first step, there could be no additional borrowing,” he said. This would mean that, rather than recording the two- or three-per-cent surpluses projected in coming years, the state would have balanced budgets.

He added that repayment to the reserve should then proceed very gradually to avoid affecting public finances and allow the process to be managed prudently.

The state has borrowed around €12 billion from the social insurance fund.

Pension sustainability

Charalambous said that, with Cyprus’ ageing population, social insurance funds alone cannot ensure adequate pensions.

He said a major project to provide additional pension support should be introduced gradually and implemented as soon as possible, referring to plans to encourage private pensions through provident funds. The aim, he said, is primarily to ensure long-term sustainability.

He also cited demographic trends as a reason for the government’s position against abolishing the 12-per-cent reduction applied to pensions for people retiring early at age 63. The government plans to reduce the adjustment to 7.5 per cent, while maintaining the standard retirement age at 65.

“It is not possible, as the conditions are today and based on the demographic data worldwide and in Cyprus, to reduce the retirement age,” Charalambous said, adding that this would affect pension adequacy.