Cyprus is debating pension reform, with discussions focusing on modernising the system and addressing sustainability concerns.
Multiple pensions for government officials have emerged as a key point of contention.
While multiple pensions for government officials is a hot-button issue, experts estimate it represents less than 10% of the system’s strain. Europe lacks a uniform approach, with each member state managing pensions differently.
Social security systems for employees and the self-employed have existed in Europe since 1971, governed by EEC Regulation 1408/71.
However, court rulings and national legislative changes have created a complex landscape, particularly for the pensions of officials who held multiple positions.
EU regulations emphasise respecting national social security systems while ensuring equal treatment for citizens.
Modernisation efforts require balancing these rights with calls for efficiency and transparency.
Proposed changes for government officials
The Ministry of Finance proposes raising the retirement age for government officials and parliamentarians from 60 to 65, aligning them with the general population.
A second proposal focuses on government officials, offering a higher lump-sum payment upon retirement in exchange for abolishing their pensions. The calculation method for the lump sum varies by position, with higher payouts for senior officials.
International Labour Organisation recommendations
The International Labour Organisation (ILO) is studying the Cypriot pension system. Their preliminary recommendations highlight the need for a balanced and sustainable system addressing:
- Low birth rates and an ageing population
- Pensions falling below the poverty line
- Actuarial adjustments for early retirement
- Expanding occupational pension options
- Ending interest-free loans to the government from the Social Insurance Fund
Global benchmarking
Mercer, a consultancy firm, analysed 47 global pension systems, with European models performing best. Iceland, the Netherlands, and Denmark lead the Mercer CFA Institute Index due to their large, well-funded defined contribution schemes and mandatory participation.
Lessons from Liz Truss
A telling example is that of British Prime Minister Liz Truss in 2022, who served for 44 days, setting the record for the shortest tenure as Prime Minister in the UK.
She was entitled to an annual pension of €133,000, sparking opposition from both the public and trade unions, who argued against it and urged Truss not to claim it.
Nevertheless, former UK Prime Ministers could claim the Public Duty Cost Allowance (PDCA). John Major, Tony Blair, Gordon Brown, David Cameron, and Theresa May all claimed at least part of this allowance.
It is worth noting that if a former Prime Minister returns to a ministerial role within three weeks (or six weeks after Parliament is dissolved for elections), they are not eligible for this allowance.
Holders of the three so-called great offices of state, namely the Prime Minister, the Speaker of the House of Commons, and the Lord Chancellor, are no longer provided with a pension of half their last salary upon leaving office, regardless of their length of service. Instead, they are now included in the Ministerial Pension Scheme, a contributory defined benefit scheme under the Parliamentary Pension Fund.
If they wish to take up a new job within the first two years after leaving office, they must seek advice from the Advisory Committee on Business Appointments (known as Acoba) regarding any job offers. The committee examines whether the role could be perceived as a ‘reward’ for favourable decisions they may have made while in power.
