We, TEKA, commit to the sound and responsible management of contributions. Our main aim is to maintain a sustainable and adequate system that will ensure the highest possible pensions.
TEKA's operation is characterised by transparency. Contributions are credited to individual savings accounts and insured persons can monitor the progress of their savings from their phone or computer.
The accounts are managed by specialised professionals. Insured persons can participate in the management of their contributions by choosing from a small number of appropriate differentiated risk products, depending on their personal financial planning.
However, making the right choice requires an understanding of the social contract of work: what are the key characteristics of the social security system, how are contributions determined and what is their rate, how are pension benefitsdetermined and what is their rate.
Because informed citizens can make better decisions and control more effectively.
Since TEKA's services are aimed at people at the beginning of their career (either as salaried or non salaried and self-employed persons), we introduce the Short Lessons on Social Security section, to explain the workings of TEKA and the Social Security system.
Social Security Contributions
Social security contributions are amounts paid by employers and employees to Social Security Funds (SSFs). They are an integral part of a person’s salary which is withheld by employers and paid to SSFs on behalf of the employees.
Contributions are calculated as a percentage of gross earnings and are distinguished in employer and employee contributions.
Employee contributions are deducted from gross earnings and the remaining amount is a person’s “net” earnings. Furthermore, taxes are deducted from a person’s “net” earnings and the remaining amount is the amount that is deposited in the employees’ bank accounts.
Employer contributions is money belonging to the employees but are called employer contributions because they are paid by employers.
Employer contributions are not deducted from the gross salary (as employee contributions are) but are part of employers’ expenditure for work provided along with gross employee earnings. And since this is money that belongs to the employees, it is paid by the employer to the SSFs on behalf the employees.
As of 1.1.2020, contributions of professionals, non salaried and self-employed persons are no longer linked to declared income. Instead, they are determined according to insurance categories which insured persons can choose freely and independently for each insurance branch, on an annual basis.
The rationale behind social security contributions
Social security contributions are mandatory in order for the Social Security and the welfare state in general to operate adequately. The introduction of the Social Security system and the compulsory inclusion of all workers ensures that upon retirement the standard of living is not very different from what they had during employment.
Contributions paid correspond to future benefits, as follows:
What are the contribution rates?
For salaried persons, contributions are calculated as a percentage of the gross salary and amount to 36.16%. Employers pay 22.29% and employees pay 13.87%. These rates apply to the majority of the salaried persons of the private sector. However, there are categories of employees with different contribution rates (e.g. employees in arduous and unhealthy professions).
For non salaried persons, self-employed persons and professionals, main insurance contributions are divided in six (6) insurance categories plus one (1) special category specifically for new insured persons during their first five (5) years of insurance. Auxiliary insurance contributions are divided in three (3) categories (see tables below):
Social security contributions are not taxes
Many people think that the social security system operates in the same way as the tax system.
Taxes are used for the functioning of the State and the implementation of social policies, while contributions is money that belongs to insured persons. This is why there is a key difference between contributions and taxes.
Both are calculated as a percentage of income, but tax rates are graduated meaning that they increase depending on income. This ensures the redistributive function of taxation: Those with higher income pay proportionately more in taxes (larger part of their income) to finance the social state which returns to the vulnerable more than they contributed. This ensures the redistribution of wealth through the taxation of income.
On the contrary, social security contributions are applied horizontally. All citizens that have salaried occupation pay the same contributions for their main pension regardless of their income. The same applies to the return of these contributions to insured persons. The main and auxiliary pension benefit does not depend on the person’s needs but on the contributions paid.
Regardless of the contributions paid, insured persons receive a national pension of €426,17. Thanks to the national pension, even low income persons who have contributed little for a short period of time are entitled to a basic pension.
The national pension is one part of the main pension and constitutes the redistributive component of our social security system. It is financed from the state budget, i.e. from taxes and not from the contributions of insured persons. Therefore, redistribution within our social security system is achieved through taxation, while the contributions we pay are not redistributive.
In order for a person to be entitled to a full national pension they must have
- 20 years of employment and insurance,
- 40 years of residence in Greece and
- be of retirement age.
This is the 2nd part of the main pension. It is called contributory because it depends on the main pension contributions paid by a person in the course of their work life. The rules for calculating the contributory pension is a little complicated because it incorporates incentives for people to remain longer in the workforce but the redistributive nature of the pension remains a key factor. Those who have contributed more over longer periods receive proportionately more.
Persons with twice the salary, pay double the contributions and are entitled to a contributory pension that is twice as high.
Persons with twice as many years of insurance pay double the contributions and are entitled to more than double the contributory pension. The contributory pension is more than double due to the incentives provided for extending people's work life.
In order for a person to be entitled to a main pension they must have at least 15 years of insurance and meet the appropriate age limits.
The auxiliary pension has a supplementary role in the social security system: It supplements pensioners’ income and it depends on the auxiliary pension contributions paid by the person during their work life.
It is a fully contributory pension. Persons with twice the salary or twice as many years of insurance pay double the contributions and are entitled to an auxiliary pension that is twice as high.
In Greece, auxiliary pensions were applied universally in 1983. In practice, they are the monthly amount provided to pensioners as a supplement to their main pension following the payment of monthly social security contributions that are independent from the main pension contributions.
You can find detailed information about TEKA's auxiliary pension eligibility, contributions and benefits here.