ATHENS - Greece's generous state pension system is at the heart of fraught talks between Athens and its creditors, as negotiators seek to avoid the country's disastrous default and potential exit from the euro zone.
Athens is racing to finalise a deal ahead of a critical June 30 deadline for a €1.5 billion (S$2.2 billion) loan repayment to the International Monetary Fund (IMF).
Creditors are, however, refusing to unlock €7.2 billion in bailout funds unless Greece promises new reforms.
- What do the international creditors want?
Greece's European and IMF creditors argue that the public pension system is simply too expensive and unsustainable.
Prime Minister Alexis Tsipras, however, contends that his recession-hit nation can ill afford cutbacks. He also faces fierce domestic pressure from his radical leftist Syriza party, which came to power in January.
Mr Tsipras has agreed to overhaul the generous retirement system and last Sunday proposed various reforms to raise €2 billion.
The creditors responded on Wednesday with counter-proposals calling for Greece to abolish early retirement sooner and raise the retirement age from 62 to 67 by 2022, not 2025 as proposed by Athens. In response, Athens withdrew two of its reform proposals under pressure from some Syriza lawmakers, including an unpopular increase in pension contributions.
- How much are Greek pensions worth?
In January this year, the average Greek pension stood at €713 per month, while the average supplementary pension was €169 per month.
Since 2010, as a result of successive austerity programmes, the pensions have decreased by about 10 per cent to 15 per cent to as low as €500 per month. The highest-paying pensions have tumbled by as much as 45 per cent to €3,000 per month.
According to 2013 data from the Organisation for Economic Co-operation and Development (OECD), the average annual pension in Greece was €20,100, compared with an average of €32,400 in OECD countries.
- How has the system been reorganised?
The number of pension funds in Greece has been shrunk from several hundred before 2010 to just 13 today.
Tighter regulation and more efficient IT have meanwhile helped to eliminate abuses of the system.
Since Jan 1, 2013, the standard retirement age has stood at 67 years, but Greeks can take early retirement at 62 if they have accumulated 12,000 working days' worth of contributions (or the equivalent of 40 years).
As a result of a series of reforms, Greece's pensions system moved from being rated the worst in the world to eighth from bottom, according to a global pensions sustainability index published by Allianz Asset Management last year.
- So why are the finances in the red?
The Greek pension system relies heavily on state expenditure, with not enough contributions from employees and employers, economists say.
This imbalance - which existed prior to the 2009 Greek debt crisis - has worsened during the six subsequent years of recession and painful austerity, during which the unemployment rate spiked from 9.5 per cent to 26.6 per cent and gross domestic product (GDP) was slashed by 25 per cent.
Greece currently has a total of 2.6 million pensioners and 1.2 million people unemployed, with a total workforce of 3.5 million people.
Its citizens are also among the oldest in Europe; around 20.5 per cent of Greeks are over 65 years old.
According to the OECD, citing 2013 data, Greece spends 13 per cent of its GDP on pension expenditure. That compares with an OECD average of 7.8 per cent.