Observation (CEACR) - adopted 2012, published 102nd ILC session (2013)

Social Security (Minimum Standards) Convention, 1952 (No. 102) - Greece (Ratification: 1955)

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Observation

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The Committee notes the Government report for the period ending 31 May 2011 received in February 2012 and its reply to the Committee’s previous comments received in September 2012, as well as the 30th annual report on the application by Greece of the European Code of Social Security for the period from 1 July 2011 to 30 June 2012.

Actuarial evaluation of the 2010 pension reform

In its 29th report on the European Code of Social Security, the Government explained the profound reform of the pension system, carried out by Act No. 3863/2010 on the “New social security system and relevant provisions”, by the need to safeguard its long-term viability and referred to an actuarial evaluation to be carried out in 2011 to assess the sustainability of reforms. In the 30th report on the Code, the Government indicates that such an evaluation was successfully carried out by the National Actuarial Authority in 2011 and supplied a copy of it (Ageing Projections Exercise 2012. Greek Pension System Fiche. European Commission, Economic Policy Committee, Ageing Working Group). The 2012 Projection Exercise evaluated changes to the main and auxiliary pension provisions in Greece brought about by the reform of 2010; new social security legislation implemented after September 2011 has not been incorporated. The main pension provision includes ten mandatory social insurance schemes, which cover salaried employees and self-employed persons grouped in certain occupations; the auxiliary pension provision includes supplementary social insurance schemes, each of which corresponds to a main social security scheme and runs in parallel with it. Together with the social solidarity grant provision (EKAS) to residents with no or low income, the main and auxiliary pension provisions account for almost 99 per cent of the total public pension expenditure in Greece. The 2012 projections were based on the present version of the ILO Pension Model developed to support actuarial reviews of statutory social security pension schemes and provide the quantitative basis for policy decisions. The projections concerning the main pension provision were peer reviewed by ILO experts.

The Committee has examined the main findings and conclusions of the 2012 projections and wishes to compliment the National Actuarial Authority for having accomplished such a complex undertaking of aggregating disparate data from multiple pension schemes into a common scenario. The reform of 2010 introduced a consolidated architecture of the pension system and new universally binding rules on entitlements, contributions, accumulation and indexation of pension rights. This permitted the previously highly fragmented Greek pension system to be financially monitored and allowed for meaningful actuarial projections which showed that, over the next 50 years, the application of stricter eligibility criteria and the reduction of the benefit replacement rate due to the decrease of the accrual rates substantially restrain benefit expenditure. Thus, the total public pension expenditure, including the EKAS, for 2060 reaches 14.6 per cent of GDP, which represents an increase of only 1.1 per cent of GDP over the period of 50 years and not the 10 per cent initially feared by the Government. This result however was achieved at the price of significantly curtailing pension rights by increasing pension age from 60 to 65, extending the full contributory period from 35 to 40 years, lowering the accrual rates and calculating pensions on the basis of the whole career earnings, instead of the five best years in the last ten before retirement. The Committee wishes to underline in this respect that, however tough the new pension rules happened to be, they stayed within the minimum standards of protection prescribed by the Convention and applied equally to all insured persons so that all current and future workers shared the burden on a pro rata basis. In particular, the combined replacement rate of the main and auxiliary pensions was maintained well above the 40 per cent level required by the Convention for the whole projected period. The 2012 projections confirmed therefore that the reforms introduced by Act No. 3863/2010 were sufficient to ensure the long-term viability of the pension system while maintaining it in line, conceptually and technically, with the minimum standards guaranteed by the Convention. According to the Government, the assessment of the 2012 projections by the Ageing Working Group of the European Commission in terms of the sustainability of pension reform in November–December 2011 was highly positive, notwithstanding the fact that the contribution of subsequent pension reduction measures adopted since September 2011 has not yet been included in this actuarial evaluation. The Committee wishes to emphasize this conclusion, which permits to distinguish the 2010 reform measures strengthening the long-term viability of the social security system from the subsequent austerity measures, which put into question the ability of the system to withstand the continuing contraction of the economy, employment and public finances.

Subsequent policies of social austerity

With regard to the pension reduction measures subsequent to the 2010 reform, which were taken in November 2011 and three times in 2012, in February, May and November, the Government states in its reply to the comments on the Convention that they were adopted within the application framework of the new Memorandum of Understanding between the Government of Greece and the IMF, the European Commission and the European Central Bank (referred to as troika). The Committee notes that these measures formed part of the austerity package and reform strategy imposed on Greece by its international creditors as a condition to unlock successive tranches of bailout funds necessary to prevent the bankruptcy of the country threatening to provoke a chain reaction throughout the European financial system. Being a member of the Eurozone, Greece did not have the option of devaluation to adjust its relative prices and wages and, to service its debts, it was therefore compelled to devalue the standards of living of its people. New cuts in pensions were introduced since 1 November 2011 by Act No. 4024/2011, including 40 per cent reduction of the part of the monthly main pension exceeding €1,000 for pensioners who have not attained the age of 55; 20 per cent reduction of the pension part exceeding €1,200 for pensioners aged 55; and 15–30 per cent reductions of various auxiliary pensions. From May 2012, main pensions, which after previous reductions still exceeded €1,300, were additionally reduced by 12 per cent with retroactive effect for the period January–April 2012 (section 6(1) of Act No. 4051/2012). A new package of austerity measures under the Memorandum of Understanding on the Medium-Term Fiscal Strategy 2013–16 (Memorandum III) was approved by the Greek Parliament in November 2012. With respect to pensions, the legal retirement age was set to rise from 64 to 67 on 1 January 2013, including for social benefits of the EKAS; all pension payments of over €1,000 were cut by between 5 and 15 per cent; Christmas, Easter and summer bonuses for pensioners were abolished, among other measures.

Impact of austerity measures on poverty levels

In August 2012, in the information supplied on Convention No. 102, the Government stated that, despite the specific measures to reduce pensions, the minimum levels set by Convention No. 102 were not affected. Minimum pensions granted by the Social Insurance Institute (IKA–ETAM) as well as other benefits granted to vulnerable social groups, such as the EKAS, the benefit for para/quadriplegia and the total disability benefit, have not been affected. Medium-income pensioners with pensions up to €1,000 per month have either not been affected by the cuts in main pensions or their income has undergone only a slight reduction not exceeding 5 per cent. The number of pensioners who have not been affected by any reduction amounted to around 1 million persons. The Committee observes however that, after the new round of pension cuts in November 2012, this information has become outdated and would have to be reviewed by the Government in its next report. In particular, the Government should be requested to indicate the exact minimum amounts of the benefits still guaranteed by the national legislation under all accepted Parts of the Convention.

The Committee further observes that pension cuts across the board have put a large percentage of the Greek population into instant poverty with no indication of how and when this population would recover. According to Eurostat data, in one year, from 2010 to 2011, the percentage of population suffering material deprivation (lack of at least three out of nine deprivation items) increased by 4.3 per cent and an additional 2.2 per cent of older persons over 60 fell below the risk of poverty threshold; the overall share of persons with an income below the risk of poverty threshold reached the highest point in the last decade. In total, in 2010, 27.7 per cent of Greek citizens or more than 3 million persons were at risk of poverty or social exclusion. The Committee notes that the information supplied by the Government included no such data and did not respond to the Committee’s previous demand to assess the spread of poverty in the country and to consider social security policies in coordination with its tax, wage and employment policies under the Memorandum of Understanding. The Committee recalls that, in September 2011, the Government informed the High-level ILO Mission that “questions such as the impact of the pension reform on poverty levels as well as the sustainability of the social security system … have not been addressed in the discussions with the troika”. In view of the serious deterioration of the situation in Greece in 2012, the Committee considers it an urgent duty of the Government to assess past and future social austerity measures in relation to one of the main objectives of the Convention, which is the prevention of poverty. In particular, the Committee would like the Government to be asked to put this question on the agenda of its future meetings with the parties to the international support mechanism for Greece.

Need to link social benefits to subsistence level

While stressing the need to closely monitor the dynamics of poverty in the country, the Committee wishes to underscore that in the present situation the existing poverty indicators linked to the median income would no more reflect the real state of deprivation of the population. In fact, in the economy where wages are in freefall, so is the median income; the related poverty threshold may then fall below the level of physical subsistence of an individual. Where benefits are calculated as percentage of substandard wages, social security system resembles an iceberg where only a small part of benefits is paid above the subsistence level, while the bulk of the system operates below this level, where the application of most provisions of the Convention becomes meaningless. The Committee considers that the State would cease to fulfil its social responsibility if its social security benefits did not ensure the subsistence of the persons protected. With these considerations in mind, the Committee is concerned that, according to the report of the high-level ILO mission, there is no concept of a subsistence wage in Greece, and that the minimum pension is set well below the poverty threshold. In February 2012, the minimum wage was reduced by 22 per cent and by 32 per cent for workers below the age of 25 and has slumped to the level of the second half of the 1970s. The Committee considers that in a country where large segments of the population live below the poverty threshold, wages and benefits should be linked to indicators of the physical subsistence of the population determined in terms of the basic needs and the minimum consumer basket. The Committee would like the Government to explain in its next report whether any subsistence level is established for different age groups of the population and, if so, how it is determined and how it is related to the minimum wage and minimum amounts of social security benefits.

Concern for justice and equity in handling the crisis

The above considerations which successively raise concerns about the impact of austerity policies on the viability of the Greek social security system, its observance of the minimum standards prescribed by the Convention, and its capacity to reduce poverty and ensure subsistence, still do not respond to no less important concern for the principles of social solidarity, justice and equity in handling the crisis. The Committee has also invited the Government to explain to what extent it abides by these principles in the context of the implementation of the international support mechanism for Greece. The Committee notes that while the Government has not replied to this question, the Greek National Commission for Human Rights and the Greek Court of Auditors have expressed strong criticism of its austerity policies. On 8 December 2011 the Greek National Commission for Human Rights – an advisory body to the Government in matters of human rights protection – issued the Recommendation with the self-explanatory title “The imperative need to reverse the sharp decline in civil liberties and social rights”, where it condemned the “ongoing drastic reductions in even the lower salaries and pensions” and “the drastic reduction or withdrawal of vital social benefits”. As this Recommendation has not been followed by the Government, the Court of Auditors, which vets Greek laws before they are submitted to parliament, one year later, in November 2012, ruled that recurrent cuts in pensions were contrary to articles 2, 4, 22 and 25 of the Constitution as they conflict with the constitutional obligation to respect and protect human dignity, the principles of equality, proportionality and the protection of labour. While decisions of the Court of Auditors are not obligatory for the Government and the State, such a ruling opens the legal way to anyone who wants to file a complaint and oppose pension cuts in court. Notwithstanding the fact that the Government did not follow the ruling of the Court of Auditors, the Committee requests it to fully reflect the position of the judiciary power of the Greek State in its next report, indicating in particular the number of cases opposing pension cuts in courts and the nature of the decisions taken by the latter.

With respect to the principles of justice and equality in relation to social austerity measures, one should recall that Article 71(1) of the Convention demands that cuts in benefits, likewise their costs, shall be borne collectively taking into account the economic situation of the classes of persons protected: the fortunate classes should bear a proportionately larger share of the burden, while persons of small means should be preserved from hardship. The Committee understands that the situation in Greece is rather the opposite: the troika stresses the need to improve Greece’s competitiveness by reducing non-wage labour costs and allowing wages to adjust downward without regard to collective agreements or the basic subsistence needs, while the Government transforms these recommendations into direct cuts in wages and pensions, which places a disproportionately large share of the country’s efforts on the ordinary people. In contrast, in its previous observation, the Committee considered it incumbent upon the Government to assess, together with the troika, the resources available to those who evade contributing to the country’s efforts, in order to ensure that they are forced to contribute by all possible legal means. Taking into account the widespread feeling of social injustice in the imposition of austerity measures, the Committee requests the Government to indicate what measures were taken to increase contribution to the country’s efforts by the most fortunate contributors – individuals, banks, companies, industries, civil and religious organizations, and other bodies able to contribute to the social welfare system through taxes or earmarked contributions.

Responsibility of the State for the reverse engineering of austerity

The Committee observes that by continuing social security reforms by means of social austerity policy the Greek State has shifted the balance between its social responsibility towards its people and the fiscal responsibility towards its creditors in favour of the latter. The Committee notes with regret that the evolution of the situation in Greece confirms its previous conclusion that applying exclusively financial solutions to the economic and social crisis could eventually lead to the collapse of the internal demand and the social functioning of the State, condemning the country to years of economic recession and social unrest. It is with great concern that the Committee notes in this respect that the Greek economy is predicted to shrink 6.5 per cent in 2012 and a further 4.5 per cent in 2013. To prevent such outcomes, the principle of the general responsibility of the State for the proper governance of its social security system, which extends throughout all the provisions of the Convention, reminds all the constituent powers of the State of their collective obligation to ensure that the policy of fiscal and financial consolidation does not undermine the fulfilment of the social and human objectives of the Convention at least at the level permitting to maintain the protected population “in health and decency” (Article 67(c) of the Convention). With this idea in mind, the Committee requests the Government to ask the National Actuarial Authority to analyse the redistributive effects of benefit cuts and to assess the overall impact of the austerity policies on the sustainability of the social security system. It should also explore and provide information on the most rapid scenarios of undoing certain austerity measures and returning disproportionately cut benefits to the socially acceptable level, which at least prevents the “programmed” impoverishment of the beneficiaries. The Committee is confident that such reverse engineering of austerity may restore some hope in the future of the Greek social security system and provide valid grounds for resuming national social dialogue for this purpose. The Committee hopes that the Greek Ministry of Labour and Social Security will make full use of the ILO technical assistance to support the quantitative analysis of these options by the National Actuarial Authority, which could then review the 2012 projections accordingly.

[The Government is asked to reply in detail to the present comments in 2013.]