Historically in Greece there has never been a unified public pension system that covers all individuals. Instead, the Greek system developed through the efforts of separate professional groups to create occupational-based pension schemes supported by the government. Even as late as 1997 there were 28 primary pension funds and over 200 supplementary pension funds. The relationship between the pension funds and the government has been murky. While the pension funds resemble private occupation-based schemes, they have been administered by legal bodies of public law and have been regulated and monitored by different government ministries.
The responsibility for overseeing the pension funds has itself been fragmented across various government agencies. Nine different government institutions were responsible for overseeing the 174 Social Insurance Funds that existed in 2004. For most of their history, the pension funds have carried the implicit backing of the government and have periodically received cash infusions from the central budget. Despite governmental oversight, each has had its own administrative structure.
For over 28 years international organizations have been warning Greece that its expenditure on pensions is too high. In 2007 the European Commission reported that Greece’s pension expenditure, at 11.5 percent of GDP, was the fourth highest among the EU-27 and was projected by 2060 to approach 25 percent of GDP—by far the highest projected estimate among the EU-27. The bulk of the rapid expansion of pension expenditure, as a percent of GDP, occurred between 1960 and 1985. There are three main reasons for these increases.
First, the relative value of pension benefits to average income across Greece fell precipitously. Between 1973 and 1985, inflation averaged 18.6 percent per year, yet pension benefits were not indexed to inflation. The government substantially increased the number of direct financial injections into the Social Security Funds and increased pensions several times over the years to help restore their purchasing power.
Second, in 1962 the government expanded pension coverage to farmers. Over the decades the benefit paid out to farmers was increased substantially. While the pension itself was low, the large proportion of farmers in the population caused the government’s pension bill to increase rapidly.
Third, low eligibility requirements meant that the number of pension payments began to exceed the number of people over age 65, as individuals were eligible to draw upon multiple pensions due to the fragmentation of the system. The government lowered eligibility requirements because, in the 1970's, increasing numbers of farmers went to work in the cities. Pensions were not portable across professions, however, which meant that accumulated pension rights were lost as urbanization increased. At the same time, the government also wanted to encourage mobility during periodic labor shortages. The government dealt with these problems by easing restrictions on pension qualification.
(...) By 1990 the Greek government grew alarmed at pension expenditure, which stood at 15 percent of GDP and 50 percent above the OECD average, and decided to pursue a two-stage pension reform strategy. Moderate reforms were passed in 1990, followed by a deeper overhaul of the pension system in 1992. (...) Implementation was to be staggered over many years, some measures as late as 2007. (...) The reforms emphasized raising revenues over cutting benefits, even though it had long been known that Greek social security contribution rates were already high and that the proper balance must be achieved through benefit reduction.
Source: A. Gupta — Greek Pension Reforms
... and what was the result of all that chaos? Uncontrolled, reckless spending:
According to a study last year by an employer’s association, pensions are now the main – and often only – source of income for just under 49% of Greek families, compared to 36% who rely mainly on salaries.
With a jobless rate of about 26% – youth unemployment is at 50% – and out-of-work benefits of €360 a month generally paid for no longer than a year, pensions have become “a vital part of the social security net for many, many people,” said Vovou [a Greek retiree interviewed in the article]. “Retired parents are having to help their adult children everywhere. And now they’re demanding we cut them even more? It’s just so very wrong.”
Wow. Pensions are the main source of income for almost 49 per cent of Greek families, while salaries only for 36 per cent. Meet Greece, the world's first gerontocracy.
ADDENDUM: Welcome to gerontocracy-cum-bureaucracy:
Every political party, whether in the coalition government or in opposition, fears the consequences of losing the support of a voting bloc of more than 700,000 government employees and their families.
So today, for every seven private employees who have been laid off, only one has left the public sector. This leaves fewer and fewer workers in a country where the unemployment rate now hovers around 25 percent to pay the taxes that provide the salaries for the people who work for the government.
Source: The New York Times
Regardless of the bailout deal, Greece is doomed.