Greece’s new first pillar supplementary statutory pension scheme, which has been running since March this year, is heading towards an estimated €24m of contributions for 2022, with more than 150,000 participants having enrolled in its first year.
The country’s state system is made up of three components: a compulsory contributory (primary) pension operating as a defined benefit (DB) pay-as-you-go scheme; a mandatory supplementary pension operating on a notional defined contribution (NDC) basis; and a state non-contributory pension, financed from the national budget.
The Hellenic Auxiliary Pensions Defined Contributions Fund (TEKA) is intended to replace the second (NDC) of these components over time, enabling the social security system to move from a currently unfunded DB scheme to a partially-funded defined contribution (DC) model.
In 2021, an actuarial study commissioned by the Greek government showed that assuming the return from TEKA is at least equal to the yield on Greek government long-term bonds, the new system will pay supplementary pensions which are on average 10% to 15% higher than the supplementary pensions that would be paid without the reform.
Kostis Hatzidakis, minister of labour and social affairs, said: “We are putting supplementary pensions on a European trajectory, and the European experience we are following [such as in Denmark and Sweden (Premium Pension)] shows the new model will lead to higher pensions.”
TEKA aims to tackle problems in Greece’s social security system, by:
- supporting its sustainability;
- ensuring higher supplementary pensions for the younger generation;
- restoring younger people’s trust in the system and discouraging undeclared work;
- diversifying the risk in pension insurance generally, i.e. the fiscal risk from state pension dependency on the national budget, the demographic risk to DB pensions, and market risk to returns for DC pensions.
The government also intends TEKA to contribute to developing the Greek economy by investing part of its portfolio in the domestic market.
TEKA is a first pillar fund, and at launch was compulsory for those who entered employment from 1 January 2022, as well as the self-employed for whom the previous system was mandatory, such as engineers and lawyers.
From 1 January 2023, all workers under 35 years of age may transfer to the new scheme on a voluntary basis.
Contribution rates are 3% of salary both for employees and employers, although there are different rates for some categories of work, such as arduous or unhealthy professions.
Contributions started to be paid in from 1 March 2022, collected by the Electronic National Social Security Fund (e-EFKA), and credited to participants’ individual accounts. The government estimates that €24m will have been paid in in contributions during 2022.
The participant will automatically be placed in a default investment portfolio with a life-cycle structure but will be able to choose another portfolio, or a combination of portfolios, with different risk profiles, through an electronic platform.
After making at least 15 years of contributions into TEKA, participants will be entitled to a life-long monthly supplementary pension as long as they have been awarded a pension from e-EFKA, the mandatory insurance fund for all Greek citizens, which is effectively the first pillar.
The supplementary pension is a life-long benefit calculated on the basis of contributions paid, the returns on investment and the mean life expectancy.
The state guarantees the total capital paid back in real terms, so that the pension will be at least equal to the contributions paid, adjusted for inflation. In the event of the death of a pensioner or an individual who has been paying into the scheme, TEKA awards part of their supplementary pension to the beneficiaries, i.e. spouse and underage children.
Participants have access to their individual account from their PC, tablet and mobile phone, enabling them to view detailed information on savings, paid contributions and investment return.
TEKA is managed by a seven-member board of directors, made up of qualified, expert individuals, selected through a transparent and merit-based process prescribed by law.
Nikolaos Tessaromatis, professor of finance at EDHEC Business School, has been appointed the board’s chair. A chief executive officer will be hired by the board itself in due course.
The board will also have responsibility for TEKA’s investment strategy. Until this is determined, contributions are being deposited with the Bank of Greece. The fund’s investment management will be outsourced to external managers for the first few years, then gradually brought inhouse.
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