Greece is facing yet another week of wrangling over its repayments to the EU, IMF and European Central Bank. Not only will it have to find the next round of money, but it will also have to pay out this month's pensions bill for its citizens. Despite five years of trying, it is still attempting to foot the bill for what was clearly an unsustainable pension scheme.
Higher rates made #Greece even more uncompetitive & resulted in higher unemployment which in turn resulted in more RedLoans,Pension collapse— KingsmanEconomics (@TakisEcon) April 17, 2015
Its crisis deepened after IMF Managing Director Christine Lagarde said she would not let Greece skip its latest debt payment to the lender, despite rumours — vehemently denied by Greece — that Finance Minister Yanis Varoufakis had asked for a stay of payment. Greece is rapidly running out of cash and could be forced to choose between making its repayment and paying its huge pension bill. Lagarde has, once again, called for Greece to reform its pensions system.
How would you feel if your pension was stopped so the IMF could pay it to the Ukraine to finance O'Bummer's war? https://t.co/nR9SoAynjC— Clive Dunn (@cliveldunn) April 17, 2015
For decades, the Greek pensions system has been hit by three major problems: massive fraud, unsustainable state funding and bad investment decisions. Five years ago, the Social Insurance Institute (IKA), which manages pensions for more than 5.5 million people, started the task of reclaiming up to $9 billion paid out in bogus pensions over the past decade.
Pension Payouts to Dead Greeks
It recently emerged that Greek Police have been investigating 179 cases of illegal pension collection for people who have been dead for ages. The cases of multiple fraud involving dead people's pensions go back over 20 year. Police reported 92 cases of dead people's next-of-kin collecting the deceased's monthly pensions from the bank by not reporting their deaths.
The entire pension system was also hugely over-generous. Tim Reay of accountancy firm PwC told Sputnik:
"It was an absurdly, astonishingly generous system where the average state pension was about 100 percent of salary, so that you ended up with a pension equal to the salary you had before you stopped working, aged 60-ish, only having paid contributions of about 20 percent of your salary — yourself and your employer. And the simple maths are that this just doesn't add up."
The second fundamental problem with the Greek pension system is that, for years, it was dominated by the state system pillar, funded directly — and in present circumstances unsustainably — by the stricken public purse. This has led to an indefinite and uncontrollable increase in spending on pensions as a proportion of Greek GDP. Despite half a decade of trying, the Greek Government has still failed to get to grips with its reform.
The third reason why the Greek Government is struggling is that — for many years — the state pension scheme over-invested in its own government bonds. Successive governments have had to cope with trying to protect pension funds from the up-to 50 per cent 'haircut' agreed in 2012 for holders of those bonds.
Tim Reay told Sputnik: "A lot of reform has been done over the last few years, since the financial crisis. Pensions now are likely to average about 50 percent of final salary based on career average earning — which incidentally also encourages people to declare their earning.
"The problem with a pension system which is calculated in this way is that it doesn't focus the limited amount of state money on the poorest people.
"The concern in Greece is that, because everybody's pension is being cut back, the poorest people are really starting to suffer as a result."