The European Social Watch Report 2010 identified the elderly as the generation most at-risk to be affected by poverty. However, within the past few years, the over-65 poverty rate has decreased dramatically, dropping from 45 percent in 2008 to 17.3 percent in 2015. Two key factors played a major role in this improvement.
Causes of Poverty in Cyprus
Pension Maturation: Everyone who is gainfully employed in Cyprus (including self-employed individuals) is eligible to receive compulsory social insurance. This insurance also includes an old age pension, which is the primary source of income for Cypriots over age 65.
The current Cypriot social insurance scheme was last reformed in 1980, affecting pension levels in two important ways. First, the system changed from a flat-rate to an earnings-related structure. This means that the level of pension available is based on the level of insurable earnings. Second, pension levels are based on the length of the contribution period. As the current system has “matured,” or gotten older, retiring Cypriots have had more time to contribute to their pensions. This has allowed for an increase in income from old-age pension, directly correlating to the decrease in the over-65 poverty rate.
Overall Wage Decline: In the wake of the 2008 global financial crisis, unemployment rose and wages fell in Cyprus. The European Social Policy Network (ESPN) cited both a 7.6 percent drop in mean monthly earnings for full-time workers between 2010 and 2014 and a rise in non-standard employment as repercussions of the crisis. However, income for Cypriots over 65 remained relatively stable due to the old age pension.
It is important to note that the dramatic decline in the over-65 poverty rate in Cyprus is not necessarily secure. The ESPN predicts that pension growth will level off as the system fully matures, the poverty line will rise as the economy grows and pension levels will be lower in the future as workers in non-standard positions retire. Maintaining the current Cyprus poverty rate for Cypriots over age 65 will require focusing on income levels for retirees. In the current system, that means safeguarding the ability for workers to obtain an adequate pension.
– Erik Beck