Since the beginning of the year, the contribution rate to the Social Insurance Fund was increased by 0.5% for employees, employers, self-employed persons and voluntary insured persons, on the basis of the Social Insurance Law. This has undoubtedly burdened both employees and businesses by significantly increasing their costs.
Following the recent publication of the law amending the Social Insurance Laws (2010-2018) in the Cyprus Government Gazette (August 2019), which stipulates a further increase of the contribution rates to the Social Insurance Fund, concerns are raised with regards to the future of pensions and the constant increase of contributions to the various funds, as this directly affects the ordinary citizens.
The recent announcement on the approval of the amendment to the Social Insurance law, which focuses on the increase of contribution rates, has kicked-started a new debate with regards to how much more will the employees’ contributions rise. There are also increasing concerns that even though employees are called to pay greater contributions to the various public funds, they may not be able to receive a respectable pension at the end of their professional obligations.
It should be noted that the main Social Insurance Law stipulates changes/increases in the contribution rates to the Social Insurance Fund until 2039; however, it doesn’t take into account various uncertain, yet important factors affecting the Cypriot economy. From its implementation until today, no amendments have been made, despite the major changes that have taken place over this period. Undoubtedly, the most important factor, was the financial crisis which devastated the island, culminating in the haircut of bank deposits in March 2013. The increase in the social insurance contribution rates is an additional cost for all the categories of insured persons, at a time when many are still struggling to recover from the crisis. Furthermore, while no amendments have been made to iron out the social security contribution rates, the House of Representatives passed the Social Insurance (Amending) Law of 2019, which imposes greater increases to Social Insurance Fund contributions as of 1 January 2024.
While the additional increases may be regarded as rather minimal, what should concern us is not the magnitude of the increases, but the fact that the intention to introduce further increases (apart from the incremental ones) is linked to growing deficiencies in state funds, which could potentially lead to unpleasant developments, including the inability to pay pensions. Therefore, it is imperative to properly manage funds and set the proper contribution rates, in order to avoid such an eventuality.
by Theodoros Mantis, Head of People Advisory, Corporate Immigration & Payroll Services at Ellinas Finance PCL