Employer Action Code: Monitor
The government has proposed reforms to increase the use of voluntary insured occupational pension funds (OPFs) for providing supplemental retirement benefits. The reforms would, among other things, change the tax treatment to encourage the payment of OPF benefits as a pension rather than a lump sum, converge the taxation of OPFs with that of group pension insurance contracts, allow unrelated employers in different sectors to participate in multiemployer OPFs, and streamline regulatory supervision of OPFs as well as the process for establishing them. First established in 2002, 28 single-employer or sectoral multiemployer OPFs are currently in operation, with around 50,000 members and approximately 300 million euros in assets (government data), so an average member account balance of only about €6,000. OPFs are defined contribution arrangements, with each setting the ranges of applicable employee and employer voluntary contribution rates.
Noteworthy proposed changes include the following:
- Taxation of OPF benefits at retirement would vary based on the duration of OPF contributions and the form of benefit payment. Income tax rates on OPF pensions would range from 10% (if up to five years of OPF contributions) to 2.5% (26 years or more); tax rates for OPF lump sum payments would be double the rate for pensions. Special provisions would apply to individuals who joined an OPF at age 55 or later. Currently, OPF lump sums are not taxed, while pensions are taxed as ordinary income.
- Effective January 1, 2024, contributions to OPFs would be tax-deferred, up to an annual cap of the lesser of 20% of the insured’s gross annual earnings and €15,000 (indexed). Currently, there is no cap on tax-deferred contributions.
- Early withdrawal of OPF funds would be allowed after 15 years of contributions, subject to a 50% increase in the tax rate payable.
- Unrelated employers in different sectors would be allowed to participate in multiemployer OPFs.
- The Bank of Greece would supervise OPFs (currently done by three separate bodies). Procedures for setting up OPFs would be simplified, and model plan rules would be established. OPFs would also be subject to certain standardized plan rules, including uniform benefit eligibility requirements (i.e., from age 55 with 20 years of OPF contributions or from the earliest age that the member can retire from social security with a full pension). Individuals who meet the aforementioned eligibility requirements may receive as a prepayment up to 50% of their individual account balance and continue working and paying contributions until their final retirement from employment.
- In addition to the OPF-related proposals, to encourage pensioners to rejoin the workforce, the current 30% tax withholding by the Unified Social Security Fund (e-EFKA), which reduces social security pensions in payment for employed pensioners, would be eliminated. For salaried employees, it would be replaced by a 10% e-EFKA levy on their employment income (capped at 12 times the minimum monthly state pension).
Even though the proposal is still subject to approval and change, employers should review their existing retirement plans in order to assess the potential impact and opportunities the proposed changes would represent. Among companies surveyed by WTW, 56% offer some form of supplemental retirement benefit, most commonly a defined contribution plan arranged with a commercial insurance provider (83% of plans). Employer interest in OPF plans has been constrained in part by the requirement that OPFs have at least 100 members, compared with 10 for group insurance contracts. The creation of non-sectoral multiemployer plans should make the OPFs a more competitive option.