Social Insurance

Cyprus Table of Contents

The five-year development plans adopted by the government of Cyprus increasingly stressed that a developing economy was the best means to improve the welfare and living standards of all sectors of the population. The plan covering the 1989-93 period had as its major objectives improving living standards, attaining higher levels of social welfare, and having a more equitable distribution of national income and economic burdens.

Beginning with independence, the state, trade unions, and the employers' associations had cooperated in establishing an extensive network of social security that included social insurance, death benefits, medical treatment and hospitalization, education, and housing. The crowning success of this effort was the national Social Insurance Scheme. As introduced by colonial authorities in 1957, it was limited with regard to both the number of persons covered and the benefits it could provide. In 1964 the plan was improved and expanded to cover every person gainfully employed on the island, including even the self-employed. The welfare program included maternity leave and assistance for sickness and workrelated injuries. Legislation providing for annual paid vacations was introduced in 1967. By 1987 Cypriots working five days a week were entitled to fifteen days of annual leave a year; those working six days a week had the right to eighteen days. Supporting this entitlement was a central vacation fund to which all participating employers were required to contribute 6 percent of insurable earnings.

A system of unemployment compensation was introduced in 1968. Its main objectives were protecting employees against arbitrary dismissal, regulating how much advance notice was required before dismissal, and setting the amount of unemployment compensation.

The Social Insurance Scheme was fundamentally improved in 1973. For the first time, the plan included a disability pension, and coverage of the self-employed was extended. The social insurance program now included a whole range of benefits. Some benefits were short-range, such as unemployment, sickness, or injury benefits, marriage and maternity benefits and disablement and funeral grants. Long-term benefits included pensions for elderly widow, and invalids, and payments to orphans and survivors.

In June 1974, social insurance payments were increased 25 percent to reach West European standards and meet relevant International Labor Organisation criteria. The economic crisis stemming from the Turkish invasion, with its 30 percent unemployment, compelled the government to reduce all pensions by 20 percent and suspend the payment of unemployment benefits, as well as marriage, birth, and funeral grants. By 1977 benefits were restored to their preinvasion levels, partly through the establishment of a separate fund for unemployment benefits.

The Social Insurance Law of 1980 set contributions and benefits according to the incomes of the insured. The new program maintained the previous flat-rate principle for basic benefits, but introduced supplementary benefits with contributions directly related to the incomes of insured persons. In addition to compulsory coverage of all gainfully employed persons, the new program allowed those formerly employed to continue their social insurance on a voluntary basis. In the second half of the 1980s, participants had amounts equal to 15.5 percent of their insurable earnings paid into the central fund. For employees, the contributions came from three sources: 6 percent from employees themselves, 6 percent from employers, and 3.5 percent from the government. For the selfemployed , the government paid 3.5 percent, and the insured the rest.

Apart from the state Social Insurance Scheme, an increasing number of insurance or pension funds were being registered with the Income Tax Department of the Ministry of Finance. In 1987 there were 1,065 such funds, with a total of Cú 5.1 million Cyprus pounds in benefit payments. The number of insured contributors to all funds, public and private, amounted to 214,522 in 1987, compared with 183,000 in 1973. In this period, the government's annual contribution increased from Cú 1.7 million to Cú 23.7 million. In 1986, the government's payments of social insurance benefits constituted 4.5 percent of GNP, compared with 1.6 percent in 1970.

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Source: U.S. Library of Congress