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Greece: New individual retirement account system to start in 2022

Retirement|Health and Benefits|Total Rewards
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By Michael Brough | September 29, 2021

Employers in Greece should prepare for TEKA, a new system replacing ETEAEP for providing supplemental retirement, death and disability benefits.

Employer Action Code: Act

Under the current rules, employees in Greece must be covered for supplemental retirement, death and disability benefits under the Unified Auxiliary Social Security and Lump Sum Benefits Fund (ETEAEP), which is based on a system of notional defined contribution (NDC) accounts. Employer and employee ETEAEP contributions are each levied at 3.25% on monthly earnings capped at 6,500 euros (increasing to €6,630 as of January 1, 2022) until June 1, 2022, when the contribution rate will decrease to 3.0%. Higher rates may be due for certain types of occupations.

In light of demographic trends and to ensure adequate pensions for future retirees, the government has enacted legislation (Law 4826/2021) to replace the NDC system gradually with a new funded defined contribution (DC) system based on individual accounts arranged with a new auxiliary fund, the Hellenic Auxiliary Pensions Defined Contribution Fund (TEKA).

Key details

The main provisions of the new arrangement are:

  • The new system will be a fully funded DC system of individual accounts, financed at the same rates of employer and employee contributions as apply under ETEAEP.
  • From January 1, 2022, all new joiners to the workforce must be enrolled in TEKA.
  • Current members of ETEAEP under age 35 as of January 1, 2022, may voluntarily join TEKA from January 1, 2023, to December 31, 2023, but older members will remain in ETEAEP.
  • TEKA members will be offered a choice of risk-rated investment funds (i.e., low, medium and high risk), with the option to change investments every three years. An investment option for a life cycle fund will also be available.
  • At normal retirement age, members with at least 15 years of insured employment (including ETEAEP) will be eligible for a lifetime annuity pension (provided the claimant meets social security eligibility requirements). A lump sum settlement amount equal to the contributions paid into the fund (adjusted for inflation) will be payable to claimants who do not qualify for a pension.

Employer implications

Employers operating in Greece should review the retirement arrangements for their staffs and prepare for the launch of the TEKA regime. With the transition from an existing retirement system to a new arrangement, some of the most significant macro questions are around how to finance both the existing and new systems (since the money from current contributions under an NDC arrangement is used to finance those benefits for members leaving the workforce). Estimates of the annual cost to the government to finance the transition range from around €78 million to €120 million. The fully funded TEKA accounts will (in the view of the government) provide more assurance to plan members that they will receive their savings at retirement, offer employees more choice and control of their accounts, and increase capital for investment. The government estimates that the TEKA system will increase the level of supplemental pension benefits by up to 68%, possibly due to the fact that there are various adjustment mechanisms that apply to NDC benefits linked to income and demographics of the underlying insured population, among other things, that are intended to eliminate deficits from the system by adjusting benefits. No such adjustments will apply under the new DC system.

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