Cyprus’s Social Insurance Fund is set to become a major investment fund holding between €50 billion and €60 billion, as the government ends its decades-long practice of borrowing from the fund and begins repaying its existing €12 billion debt, Labour Minister Marinos Moushouttas has said.
Speaking after a meeting of the Labour Advisory Body at the Ministry of Labour on Thursday, Moushouttas said the government was ending “the long-standing practice of the state borrowing from the Social Insurance Fund.” All future surpluses of the fund will be directed into an investment fund, he said.
“With today’s figures, these surpluses are estimated at €800 million per year,” Moushouttas said, according to CNA. These annual surpluses, combined with the gradual repayment of the €12 billion debt by the government, will build a reserve “in the order of €50 to €60 billion,” he said, which will continue to grow and be invested to generate returns.
“This is why it is even more necessary for this fund to be managed in the best possible way, in accordance with European standards,” Moushouttas said, adding that the money must be safeguarded at all costs. “These are the funds that will protect the long-term viability of the Social Insurance Fund,” he said.
How the debt will be repaid
The government will repay its existing debt to the fund in annual instalments equivalent to approximately 3 per thousand of GDP. “Today that figure translates to €100-120 million per year. So the €100 million, plus the surplus, will go directly into the Social Insurance Fund account,” Moushouttas said, to be managed in line with best practices and on the advice of investment firms.
Repayments will be linked to public debt levels, with safeguard clauses built in. “None of us wants the fund to be doing very well while the economy is struggling,” Moushouttas said. “So there will be some safeguard clauses for emergency situations that may modify this element.”
According to CNA, the minister said instalments will be transferred to the fund’s account on an annual basis, beginning once an independent management entity is established — expected by end of 2027. “So we consider that around the end of 2027 the surpluses and the year’s instalment will be able to enter the fund,” he said.
An actuarial study projects a 40-year window, from 2026 to 2066, within which the existing €12 billion debt will be fully repaid. A separate independent entity, modelled on the governance framework used for the hydrocarbon fund, will be established to manage the fund’s investments in line with international governance standards.
Pillar zero
Thursday’s session also covered the first pillar of the pension reform and questions relating to the 12% deduction for those retiring at 63, as well as clarifications on pillar zero. “Pillar zero is the social policy that exists today — we are talking about the small supplement, the social pension, which is money given by the state and not by the fund,” Moushouttas said.
These amounts will be consolidated into a single payment, he said, with details to be presented at the next session. The Ministry of Finance will also be invited to a future session to provide details on public debt matters.
Legislative timeline
Moushouttas said the aim is to submit the pension reform legislation to parliament before it rises for the summer recess on July 15, with debate to begin in September. “We want to use the summer productively as a ministry, together with our technocrats and associates, to visit all parliamentary parties and brief them on the legislation,” he said, according to CNA.
The minister acknowledged differences remain in the discussions with social partners, but said cooperation between the ministry and all partners “is in a very good place,” adding that he intends to pursue even closer collaboration with all parties going forward.
The next session of the Labour Advisory Body is scheduled for May 25, with the technical committee meeting on May 28.
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