Pensions: Changes for a lump sum and auxiliary new type

Legislation that will change the way the Professional Development Funds (TEA) are established, operated and supervised by the Ministry of Labor and Social Security by the end of the year.

Changes to Law 5078/2023, which forms the basis for capitalizing professional insurance, have a triple target. First, the reduction in public expenditure on pensions.

Secondly, the reinforcement of workers’ incomes after they retire. And third, the financing of businesses with insurance contributions collected by TEAs.

According to Social Security Secretary General Konstantinos Tsagaropoulos at the 6th Annual Vocational Insurance Conference, the Ministry has already elaborated the first « draft » of changes in the existing legislative framework.

On the basis of these, he will discuss with the bodies, such as the Hellenic Association of Vocational Insurance Funds (EKEA) and the Bank of Greece (BoG), with the aim of the institution of TEA to extend to more businesses and sectors.

Changes to existing legislation are expected to simplify existing restrictions on the establishment of TEA, with the aim of establishing more funds.

Among other things, the number of members required to set up an TEA, which is currently 100 (20 founding + 80 simple members), is foreseen.

This restriction automatically excludes the vast majority of Greek businesses, since, according to Eurostat data, only 5,894 Greek companies have more than 50 employees – less than 1% of the total.

In addition, the Ministry will take steps to make it easier to create a multitude of TEAs, that is, funds with members of more than one business.

At the same time, it is certain that financial incentives will be given to integrate more employees into the TEA. Such is the reduction in social security contributions, as well as the further reduction in taxation on TEAs. EKETEA also calls for the introduction of incentives to participate in social partners (eg trade unions) in existing TEAs or for the establishment of new ones. After all, the Union is seeking a reduction in independent taxation in the lump sum benefits.

In addition, changes are planned on the supervision of the TEA, which has been undertaken by the beginning of 2025 by the BoG. According to the responsible Director General of the Central Bank Yiannis Tsikripis, the TEA sector is now mature to operate with more freedoms, without the need for supervisory approval for simple acts (eg change of brand, introduction of new funding sources).

He added that the discrimination between the various bodies of the second pillar of the insurance system, consisting of the TEAs, but also of insurance companies that provide collective insurance with pension rights, must be eliminated.

The arrangements will therefore provide for both the equation of TEAs and insurance companies, as well as the portability of pension rights between the various organizations of the second pillar (from TEA to insurance company or even vice versa). Thus, an employee will be able to easily change his auxiliary capitalization program.

The above moves are expected to significantly reduce the cost of the public social security system that, given the demographic, has a time bomb characteristics. In addition, the increase in TEA assets will also increase the funding of the Greek economy, as funds invest part of the contributions in low risk bonds and shares (average annual yield of 4.23%), thereby multiplying the insured’s money and providing higher pensions than those of EFKA.