Greece faces a significant challenge with its pension system, as highlighted in a recent study by the Center for Liberal Studies (KEFiM). The study estimates Greece's "hidden" pension debt at an alarming 409% of its GDP. This debt arises from pension obligations to workers in both the public and private sectors, obligations that are not accounted for in the Maastricht debt criterion used across the European Union.
According to Konstantinos Saravakos, KEFiM's Head of Research and author of the policy paper, this oversight hampers Greece’s ability to transition to a robust capitalization-based pension system. He argues that European fiscal and accounting rules need to facilitate, rather than hinder, this critical reform.
Compared to other EU countries, Greece significantly lags in establishing a strong capitalization pillar within its pension system. This shortfall results in an annual income loss of €770 per capita as of 2022, affecting both the country’s GDP and the sustainability of its pension framework. KEFiM’s findings, presented in collaboration with the EPICENTER think tank network, aim to provide actionable insights for the next European Commission’s policymaking agenda for 2025-2030.
The study reveals that in 2018, half of Greece’s pension spending was financed through the state budget via general taxation, with only the remaining half covered by worker contributions. By 2025, 43% of pension costs are still expected to rely on the state budget. Despite implementing substantial reforms, Greece remains the EU’s third-highest spender on pensions relative to GDP.
Between 2012 and 2021, Iceland and Denmark achieved significant wealth creation, equivalent to 11% of their GDP, through capitalized pension savings. In Greece, by contrast, no such wealth was generated. Across the EU, capitalized pension systems represented an average of 29% of GDP during this period, compared to 84% in OECD countries.
This disparity has resulted in the EU’s GDP being 2.4 percentage points lower annually, equivalent to €350 billion. For Greece, the absence of a capitalization system has led to an estimated annual income loss of €770 per capita.
The Maastricht debt criterion does not account for implicit liabilities from pension obligations. In Greece, these liabilities exceed 400% of GDP, a situation not unique to the country but representative of a broader European challenge. This omission makes comparisons with countries like the United States, Canada, and Australia, where such obligations are more transparently reported, particularly difficult.
The study emphasizes the urgency of reforming Greece’s pension system and calls for European fiscal rules that support the development of capitalization-based frameworks. Such changes are essential for ensuring long-term sustainability and enhancing Greece’s economic resilience on the global stage.
