K. Hatzidakis on TEKA: A reform that young people deserve

“Individual piggy banks for young people in supplementary pensions is a European reform. It is an opening of the state to young people, especially young workers” underlined the Minister of Labor and Social Affairs, Kostis Hatzidakis in the presentation of the Fund for Auxiliary Capitalization Insurance (TEKA), tonight, at the “Miltiadis Evert” amphitheater of Technopolis, in the presence of Prime Minister Kyriakos Mitsotakis.

“Today, 50 thousand young people have already joined the new system. And although, by the end of the year, we estimate that around 80 thousand will have joined, it will be very interesting to see what will happen from January 1, 2023, when they will start the rest of the young people up to 35 years of age should also join voluntarily,” said the minister, while stressing that TEKA is “a reform that in any case deserves the young people, who feel that the political system does not pay the necessary attention to their concerns!”.

Mr. Hatzidakis expressed his confidence that “young men and women will embrace the new system” because, as he characteristically commented, “it puts them first”. The “Insurance Reform for Young People” is a “modern European and efficient system that not only limits the risk, putting our eggs in more baskets – the redistributive system for the main pensions, the capitalization system for the supplementary ones – is not only one system that increases savings and investments and will eventually act as a driver of economic growth, it is primarily a system that supports economic freedom” commented the minister, pointing out that the rights of choice of young people are expanded and through the new system it is ensured for them a better future.

As Mr. Hatzidakis reminded, right from the beginning of his speech, “individual piggy banks for young people was a pre-election commitment of New Democracy, a position we had already formulated since our programming conference in 2017”. The reform is “essentially the transition from the redistributive to the capitalization system in terms of the supplementary pensions of all those who join the labor market for the 1st time or for those who choose it from 01.01.23, provided that they are up to 35 years old” explained Mr. Hatzidakis.

TEKA is “a public fund responsible” for the investments that will result from each insured person’s contributions to their individual piggy bank and will offer three alternatives in terms of the insured’s investment profile. That is, “you will decide whether you will have a more aggressive investment profile, a more conservative one or something in between and you will be able to monitor (even from your mobile phone, as you do with your bank account) how your investments are developing ” said Mr. Hatzidakis referring to each new employee. In addition, the State “in any case guarantees that even if everything goes wrong in the markets and investments, you will definitely get back all your contributions plus inflation”.

“As for the cost of the transition, all studies show that it is a cost which ultimately comes to around 120 million euros per year on average in a budget that gives 15 billion per year for pensions” commented the Minister of Labor and Social Affairs, noting that “in the first year it was only 34 million”. “It is worth it, I believe, for the new generation to give 120 million so that our young people can get larger supplementary pensions” underlined Mr. Hatzidakis, concluding in his speech that this is a reform that “the new generation of Greece deserves and deserves”.

Panagiotis Tsakloglou: Why the reform was necessary

The Deputy Minister of Social Security, Panagiotis Tsakloglou, detailed the “four main reasons” why the government is proceeding with the reform of TEKA. First, as the deputy minister pointed out, “we want to ensure higher pensions for the next generation”. He reminded that the system is not being tested for the first time but is already implemented in many countries and if the returns of the capitalization systems are compared to the distributive systems, despite “the fluctuations” of the former “in the long term they are much higher than the pensions given by the distributive systems systems, i.e. like what we have now where workers pay the pensions of retirees, and especially from the systems of societies that are old, like the Greek one”.

The second reason, according to the deputy minister, is that this system “creates savings capital which will be invested and an important part of it will be invested in the Greek economy”, which will drag down productivity, growth rates, workers’ wages and in second level will lead to “higher fiscal revenues, higher income taxes, higher consumption taxes, higher social security contributions.”

Thirdly, the deputy minister referred to insecure work, commenting that “it is bad both for workers and for our economy as a whole on a macro-economic level”. With the new system, your money, Mr. Tsakloglou pointed out, addressing the young people in the auditorium, “goes to these individual piggy banks”, which “write your name on it. For every 100 euros you receive, 6 euros will go in this particular piggy bank”. “Very strong disincentives are being created for insecure work,” the deputy minister concluded.

Finally, “social security, as the term itself says, is a form of insurance. The basic principle of insurance is that I don’t put all my eggs in one basket and what was done with the social security system until a few years ago years was that we put all our eggs on the distribution system” emphasized Mr. Tsakloglou, adding “that is, what will the previous generation give to the next and even to a generation which demographically is getting smaller”. As he said, “with the new system, you young people that I see here will receive three pensions: national pension, which is given by the budget, – it has a risk, it is the fiscal risk -, the second is the compensatory pension – it is subject to demographic risk-, the third is the auxiliary, -and this has a risk, it is subject to the risk of the markets-“. However, “the three risks are not perfectly correlated so the whole system has a lower risk which is a lower risk for both your pensions and the entire social security system” concluded Mr. Tsakloglou.

Paulina Karasiotou: A Fund with a modern face

“When we were called, as the Temporary Management Committee, to take over the establishment and operation of TEKA, we tried from the first moment to build a truly different new Public Agency” noted the general secretary of Social Insurance, Paulina Karasiotou, adding that for the project to succeed it had to to take advantage of “the comparative advantages and special characteristics of the Fund”. These are that “its insured are exclusively young people, with different needs and requirements from the older insured” and that “for several years TEKA will only have insured and not pensioners”.

Therefore, the Interim Steering Committee made the choice to move away from the “traditional model of an insurance fund” and preferred “relationship with the citizen, the exploitation of new technologies and communication”. “This is our philosophy: a Fund with a modern face” emphasized Mrs. Karasiotou.

“Today, coincidentally, one year has passed since the day the “Reform for the New Generation” bill was submitted to Parliament,” said the general secretary, adding that “365 days later, we have a functioning Fund, on January 1st we welcomed the first insured persons” .

Regarding the priorities of the new Fund, Mrs. Karasiotou stated that for 2022 it was “to set up and operate the systems related to the declaration and payment of contributions, while in just five months from today, in 2023, a still an important period for TEKA” as “it is the year when the Fund welcomes the first voluntarily insured persons and develops the default investment product”. The third maturation phase of TEKA is expected in 2025, when “the insured will now choose their investment profile”.

Mrs. Karasiotou announced that in the coming days three more applications will be available, either in full or in pilot mode: the employer’s tab, in which employers will be able to see the debits of their account, the application of offsets of social obligations insurance and myTEKA for the self-employed”, which “in the third quarter of 2022 will be extended to the self-employed”.

“TEKA not only works, but it has the prospect of a leap forward development. Within 6 months, the insured exceeded 50 thousand and it is expected to reach 80 thousand by the end of the year” pointed out the general secretary, adding that they have already more than 30 thousand employers will join and that it is estimated that by 2050 TEKA will cover around 2.5 million insured persons.

At the start of the presentation, an informational video on “Insurance Reform for Young People” stated that “a year ago, young people gained control over their supplementary pension with individual piggy banks and will be able to influence its level by choosing for themselves investment profile. The state guarantees that in any case they will receive their contributions plus inflation. The first 80 thousand young people will have joined the new system by 2022. All information about the new Fund is available online through teka.gov. gr. Insureds will have direct access to their contributions from the myTEKA web app within 2022. This system is already successfully implemented in other European countries (such as Denmark, the Netherlands and Sweden) and leads to higher pensions for young people from 43% to 68%”.

This was followed by a conversation between Prime Minister Kyriakos Mitsotakis and four young people about their work and insurance experiences.