The Cyprus government will stop borrowing from Social Insurance Fund (SIF) surpluses and begin gradually repaying its 12-billion-euro debt to the Fund, possibly from the end of 2028, Labour Minister Marinos Moushouttas announced yesterday.
Moushouttas informed social partners of the government decision at yesterday’s session of the Labour Advisory Body. He outlined three concrete steps, stressing that implementation would require particular care to avoid complications for the public finances.
If the government were forced to borrow from other sources to cover its needs, he noted, this could affect the public debt, since internal borrowing from the SIF had not been included in that statistic.
Borrowing halted, repayment formula sought
On the first point, Moushouttas said: “The first thing that has been achieved is that borrowing is being terminated, and we are now trying to find the formula by which this money will gradually come back to the SIF” — that is, over how many years.
On the second point, he said that “the surpluses that exist each year in the SIF will now go into a Fund account.”
The third element concerns who will manage the funds going forward. “Up to now, management of the Fund’s money was carried out by the Ministry of Finance,” Moushouttas said. “The Ministry of Finance will no longer manage the Fund’s surpluses and will send them to us to manage.” Both the SIF surpluses and the instalments for repaying the state’s debt to the Fund, he said, “will go into a SIF account.”
Moushouttas added that “the amount owed stands at 12 billion and over a 50-year horizon the surpluses will be in the order of 50 to 60 billion.” He noted that 95% of SIF funds are currently invested in government bonds, which he described as a safe investment, with the remaining 5% held in Cypriot banks.
Pension reform pillars
The Labour Advisory Body also discussed the first and second pillars of the pension reform. Moushouttas reiterated that the government intends to keep to the timetable set for submitting first pillar legislation to parliament in June, with discussion to begin in September 2026 and implementation on January 1, 2027.
On the second pillar, he said the relevant legislation would require more time to develop and implement. This stands in contrast to the position of employers and trade unions, who insist that the pension reform must be designed and decided in its entirety, regardless of when each part is implemented.
Moushouttas said a technical committee would be set up immediately to begin discussions on the various elements of the second pillar. Among the key questions to be examined are whether contributions will be mandatory or voluntary; whether provident fund gratuities will be paid on retirement or when a worker changes jobs; whether borrowing from provident funds will continue and, if so, at what quota; and whether beneficiaries will receive 50% of their provident fund as a lump sum, with the remaining 50% distributed in equal instalments based on life expectancy.