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Cyprus Pension Programs. Expected changes in the legislation

Cyprus pension programs

Youth and health are not eternal. Each of us must do everything possible to secure a decent future for himself and his loved ones.

Nevertheless, the financial stability and well-being that should accompany you after retirement cannot be achieved overnight.

Existing government pension programs, as good as they are, cannot provide their beneficiaries with pensions that will allow them to live according to their real needs. In particular, according to Eurostat, Cyprus have one of the lowest pension levels in Europe.

In Cyprus the average monthly pension is 900 Euro, the minimum is about 400 Euro and the maximum pension does not exceed 1,700 Euro. 

Therefore, a combination of public and private pension insurance schemes can become an undeniable solution for each of us.

Participating in an individual or group private pension plan will allow you to receive a substantial premium to your government-mandated pension benefits.

The choice of a private pension plan is individual and should be based on your needs and options.

You should determine the level of well-being that is most comfortable for you and corresponds to your lifestyle and then choose the mechanisms and methods for ensuring it.

The sooner you develop your personal pension plan, the easier it will be for you to implement it.

Cyprus group pension plans and mixed pension insurance

Today in Cyprus group pension plans are offered exclusively under the state social insurance system. At the same time, in the United States and in many European countries there are mixed pension insurance systems in which the public pension program is complemented by widely recognized group and individual private programs.

The system of mixed pension insurance is the most viable and effective, and in the future it will be used by all countries of the European Union.

State Pension Insurance in Cyprus

Any person, regardless of their citizenship and country of origin, who has officially worked in Cyprus for at least 13 years and who has made all the necessary contributions to social insurance funds, has the right to receive a pension in Cyprus.

It should be noted that the retirement experience in Cyprus also includes the years spent by the employee on full-time studies at higher education institutions, regardless of the country of study.

The established retirement age in Cyprus is 65 years. At the same time, starting from 2023, the retirement age will increase by six months every year until it reaches 67 years.

The payment of the state pension in Cyprus is carried out 13 times a year: one payment monthly from January to November and 2 payments in December (by analogy with the monthly and 13th salary).

State pension in Cyprus consists of two parts: basic and supplementary. The size of the pension is determined by the points earned by a person in the course of his labor activity. The number of points depends on the level of the employee's salary declared in the social security system and the total length of service. The minimum number of points that must be collected to receive a pension is 15.

An employee can monitor the number of retirement points he has earned, write a letter, or visit the Social Security Department to find out what his pension is. This information can also be accessed through the government gateway portal.

The accumulated retirement points of the employee can be transferred to his pension in Cyprus from any country where he worked.

Group private pension plans in Cyprus

By the end of 2021 we expect a general revision of Cyprus pension legislation.

According to the projects under discussion, one of the most important changes will be the approval of voluntary group private pension plans (which is referred to in the legislation as component 7). Individuals permanently working in Cyprus will have access to such programs.

Private group pension programs will be implemented in the same manner as government social security programs. Each month a certain percentage of salary corresponding to the size of the pension contribution will be automatically deducted from the salaries of employees, and the remainder will be paid by the employer. However, only employers or employees will be able to pay pension contributions.

Private group pension plans will be provided exclusively by Cyprus insurance companies.

The Government of Cyprus intends to fully adapt the legislation of the republic to the provisions of European legislation. The largest international investment companies (for example, Goldman Sachs, Pimco, Vanguard, JP Morgan, BlackRock, etc.) will manage the insurance pension savings.

The creditworthiness and any financial risks associated with the possible bankruptcy of a Cypriot insurance company will not affect the safety of investors' funds.

The insurance product that we expect to present to the market will be formed from annuity subsidiary payments: a certain amount will be deducted from the employee's salary, and the corresponding amount will be paid by the employer.

Upon reaching the retirement age the individual beneficiary will be offered a guaranteed minimum monthly pension. Some programs will also be able to offer overpayments (for example, if a fund has a higher return than expected, it offers a share in the form of a pension to the insured). These insurance programs will be offered by both investment and insurance companies.

Programs will be sold exclusively by licensed insurance and investment consultants. The superintendent of insurance companies will also assume the role of superintendent of private pension programs.

The procedure for regulating group private pension programs

Voluntary private pension plans will be governed by common European legislation under PEPP (Pan-European Personal Pension Product) initiative.

A common fund will be created to which all working Europeans can contribute, regardless of their type of employment (full or part-time, self-employment, etc.).

Once a European finds a job in another country, his pension can be easily transferred to that country.

PEPP will be governed by PRIP (PRIP - Packaged Retail Investment Products) legislation, which stipulates that investment products sold by insurance companies must be accompanied by a Key Information Document (KID) detailing the characteristics and structure of the investment plan. The main function of KID will be to enable the investor to compare the cost of various programs and choose the ideal one for himself.

In the near future both PEPP and PRIP will be integrated in Cyprus.

Individual private pension programs in Cyprus

Individual private pension schemes currently in force in Cyprus allow their beneficiaries to accumulate a predetermined amount by the time they retire.

Pension contributions represent a defined amount, stated in the insurance contract, paid by the policyholder on a monthly, semi-annual or annual basis.

Upon reaching retirement age or early retirement (depending on the insurance plan), the beneficiary of an individual private pension program is paid the total amount of pension savings in a lump sum or monthly annuity payments are provided.

Tax benefits of individual and group private pension plans. Tax reform and tax breaks

Changes in the legislation in connection with the introduction of private group pension programs will be accompanied by another positive development - the expansion of tax incentives.

In accordance with the new bill, Cyprus tax authorities will fully recognize group private pension plans and will provide full tax exemption on the amount of contributions to pension funds under these programs.

At the same time, individual private pension plans operating in Cyprus offer tax benefits already today. By taking advantage of these programs each of us can save money every month.

Today the maximum amount of the income of individuals that can be exempted from taxation on one or another basis provided by the law is 20% of the gross income of an individual.

This 20% includes social insurance, contributions to GESY, as well as part of the cost of life insurance, investment, health and pension insurance.

It is expected that to encourage investors to participate in private pension insurance programs the maximum share of an individual's gross tax that can be excluded from taxation will increase from 20% to 25%.

Choosing a private pension plan and tax planning

Choosing the right private pension plan must be accompanied by sound tax planning.

Here are some of the main tax regulations in Cyprus:

  1. For the determination of Cyprus tax residency rule 183 or rule 60 days shall apply.

  2. In case of transfer of pension from abroad, a horizontal (flat) tax of 5% is levied on all the amounts exceeding 3,420 Euro.

  3. Under certain conditions, respectively, 20% or 50% of the remuneration of persons who were not residents of Cyprus prior to their employment are exempt from tax.

  4. The percentage of contributions to social insurance funds is 8.3%.

  5. The maximum total salary from which social security contributions are deducted is 57,408 Euro per year.

  6. Self-employed individuals (sole proprietors) whose income exceeds 70,000 Euro are required to submit approved financial statements to the tax authorities of Cyprus.

Financial planning and choice of a pension program

Proper financial planning is essential when preparing for retirement and choosing a retirement plan.

It includes the following steps:

1) Calculation of the retirement points that you have accumulated at the time of planning:

You can calculate your points by contacting the Department of Social Services or through Ariadne portal.

2) If you have worked abroad, you must complete all the procedures for transferring your pension to Cyprus.

3) Determination of the desired amount of pension at retirement age.

Typically, this amount ranges from 60% to 75% of the salary of the future pensioner.

4) Analysis of the budget constraints (determination of a comfortable amount for you to make a pension investment, based on an analysis of your income and expenses).

5) Selection of funds in which you would like to invest:

Depending on your investment profile, you need to select the investment funds that are suitable for you with the help of a financial advisor.

In case you need advice on tax and financial planning when concluding private pension insurance contracts, please contact Pitsas Insurances specialists by phone 26 600 620 or by e-mail [email protected].

To conclude an individual private pension insurance contract, follow the link Investment insurance and calculate the cost of your pension plan.


Pitsas Insurances Director

Antonis Theofanous

July 28, 2021

Limassol, Cyprus

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