The Pension Traps of Northern Cyprus

Hasan U. Altiok and Glenn Jenkins ()
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Hasan U. Altiok: Eastern Mediterranean University, Cyprus

No 2012-03, Development Discussion Papers from JDI Executive Programs

Abstract: This paper reviews how the Pay-As-You-Go (PAYGO) Civil Service and Social Security pension systems in North Cyprus enabled policy makers to make promises to the Turkish Cypriot residents to retain them on the Island following a long protracted civil war. Unfortunately, the success of this policy has created a relatively huge unfunded pension liability that is becoming an increasingly heavier burden on both the labor force and the general taxpayer. Estimates are presented here of the difference between the present values of future contributions to be made and the pension benefits to be received by those currently retired and those who are contribution now but will retire in the future. The analysis covers the period from 2009 until the last person now contributing to these systems first retires and then dies. Various policy reform options are also examined in this study. The estimated unfunded liability of these pension plans is found to be so large that none of the conventional policy reforms used in the EU is effective in fixing the fiscal imbalances already created by past policies. Structural reforms such as moving towards private pension plans with tax incentives for contribution, and perhaps at the same time administering a high rate social insurance contribution system in lieu of a personal income tax seems to be more promising strategy.

Keywords: pay-as-you-go; social security; pension liabilities; reforms (search for similar items in EconPapers)
JEL-codes: H55 H68 (search for similar items in EconPapers)
Pages: 17 pages
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:qed:dpaper:220

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