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Analysis 19/2016: The Greek pension system: from irresponsible distribution to the crisis. Conclusions for Poland

Analysis 19/2016: The Greek pension system: from irresponsible distribution to the crisis. Conclusions for Poland


Greek pre-crisis retirement expenditure was one of the highest in the European Union at 12% of GDP, and according to projections, they were to increase up to 24% of GDP by 2060, unless reforms are introduced. Too much government spending on pensions was one of the primary reasons for the rise in public debt, which already in 2010 Greece was no longer able to repay on her own.

The main negative attributes of the Greek pension system were, in particular, excessive retirement benefits (unrelated to collected contributions and financial capacity), too low retirement age, complicated pension calculation and payment system, and numerous retirement benefits.

The benefits offered by the Greek pension system were very large especially in comparison with other EU or OECD systems. The net replacement rate, i.e., the ratio of the net pension to the last net salary in Greece was over 100% for both low income and medium and high-income earners. It is higher than the average for OECD countries (from 63% up to 83% depending on income) and much more than the average for Germany (less than 60%).

The inability to maintain the bad system was evident especially in the context of aging Greek society. In Greece, the number of people over the age of 65 in relation to the number of people between the ages of 15 and 64 was one of the highest in the EU.

The debt crisis that Greece fell into in 2010 has forced a substantial but spread over time reform of the pension system. These consisted mainly of lowering benefits, raising the retirement age, simplifying the system and eliminating part of the pension benefits.

However, the adopted reforms are not sufficient to limit the negative impact of the pension system on the state of the public finances and will probably need further changes, which will bring expected effects only in the future.

The example of Greece confirms that with the aging society and the pension system based on the payment of pensions out of current contributions and taxes, without adjusting the retirement age to increasing life expectancy, there will eventually be a reduction in pensions and an increase in taxation. It is very risky to cover the gap between the level of contributions and the amount of old-age pensions through long-term debt, as the continuous increase of public debt, especially in the case of small economies, sooner or later ends with the state's fiscal crisis.

The story of the Greek pension system and the Greek debt crisis should be an important lesson for Polish politicians not to take irresponsible changes such as "simple" reinstatement of the previous lower retirement. Instead, they should eliminate the remaining retirement benefits and adjust the system to inevitably aging populations.

Full analysis (in Polish) is aviliable here.


Daniel Góra

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Natalia Wykrota, Director of PR & Marketing Department
e-mail: natalia.wykrota@for.org.pl

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