What does high inflation bring for pensions and contributions?

By Dimitris Katsaganis

The ever-increasing inflation is expected to have opposite effects on the adjustment from 2023 to the contributions of the self-employed, but also to the main pensions.

In particular, high inflation will bring high increases in the main pensions leading to higher salaries for the beneficiaries, while it will bring a high increase in the contributions of the self-employed, reducing their disposable income.

This is because, first of all, in relation to pensioners, the existing institutional framework stipulates that nominal increases in pensions are “thawed”.

That is, they will lead to an increase. The increase will be determined by 50% of the GDP growth rate and by 50% the growth rate of last year’s consumer price index.

If the latest OECD forecasts, which come after those of the IMF and most recently the Commission (June 2023) for Greece, which forecast GDP growth of 2.8% and inflation of 8.8%, are verified, then there is an increase of 5.8% in the main pensions from January 1, 2023.

Practically, retirees will see this increase before this Christmas, as January pensions are traditionally paid before the holidays.

This increase will be real (ie it will be felt in their “pockets”) for the “new” retirees, ie for those who retired after May 13, 2016.

Accounting, however, will be for the “old” retirees, ie for those who retired before May 13, 2016, as the negative personal difference will be reduced by the rate of increase.

After this difference is amortized in the coming years (ie the time of full amortization varies depending on each retiree), the “old” retirees will also see a real increase in their salaries.

With regard to the contributions of the self-employed, the self-employed and the farmers, the existing institutional framework provides for their increase by the same rate as the increase in inflation of the previous year.

Thus, if the OECD forecasts for inflation of 8.8% this year are verified, this will lead to an increase in the contributions of professionals by 8.8%.

However, according to information from Capital.gr, suggestions have fallen on the government’s table either for “freezing” this (or any other) increase for 2023, or an increase in half of inflation.

On the other hand, there are suggestions for an increase in the level of increase of the minimum wage in 2022 (9.5%) or an increase in the level of the wage index, after of course, the institutional framework has changed.