The Pension Sustainability Challenge in Greece and the EU: Findings from a KEFiM Study

The social security system remains one of the most critical structural challenges for the Greek economy, while the issue of its long-term sustainability extends to a pan-European level. According to a new study by KEFiM (Center for Liberal Studies, a prominent Athens-based think tank) titled “The Pension System in Greece and the EU: A Development Tool Without Implementation,” the low coverage of pensions through contributions highlights the need for immediate and targeted reforms.

The Pension Landscape in Greece

As explained in an interview with Tornos News by the Head of Research at KEFiM, Mr. Konstantinos Saravakos, the social security system in Greece remains a significant challenge for both the economy and taxpayers. Based on estimates for 2025, only 57% of pensions in the country are expected to be funded by social security contributions, with the remaining 43% covered by the state budget. This comes alongside recent reports on the June pension payment schedule, which details the disbursement timeline across various funds.

It is worth noting that, within the context of analyzing the growth and primary surpluses of the Greek economy, the system’s fundamental structural problem remains without a substantial solution. This persists despite reforms implemented over the previous decade that moved Greece from first place (in 2012) to fourth place (in 2023) in the European Union regarding pension expenditure as a percentage of GDP.

The Situation in EU Institutions

The issue of pension funding is not an exclusively Greek phenomenon. The KEFiM study provides a revealing comparison with the pension system of the European Union institutions themselves. According to the data, the European model operates without the existence of reserves.

Specifically, only 21% of EU pensions are covered by contributions, while a staggering 79% is funded directly from the European budget. Additionally, the analysis records a 183% increase in related payments for the 2000-2024 period, with costs skyrocketing from €580 million ($629.4 million) to €2.9 billion ($3.15 billion). As Mr. Saravakos emphasizes, the inability to create sufficient reserves to cover future obligations constitutes a generalized European problem.

Consequences and Reform Proposals

According to Mr. Saravakos, the operation of a primarily pay-as-you-go system—where current taxes and contributions fund current pensions—effectively shifts the financial burden onto younger generations. Demographic aging and a shrinking active population further exacerbate the situation, despite the strong decline in unemployment to 9.2% and the surge in employment recorded in the labor market. Concurrently, the absence of strong funded pillars (pension schemes where contributions are invested) deprives the real economy, innovation, and businesses of significant resources, which are consumed exclusively to meet current needs.

To address the problem, the study proposes a 5% reduction in EU administrative expenses in the next Multiannual Financial Framework (2028-2034). Such a move is estimated to create reserves of €87 billion ($94.4 billion), ensuring annual self-funding of approximately €3 billion ($3.25 billion). On a broader level, the gradual strengthening of funded pillars, systematic saving, the investment of a portion of contributions, and the enhancement of the proportionality between contributions and benefits are considered essential prerequisites for making the social security system fair, sustainable, and truly growth-oriented.