The social security pension system of north Cyprus: analysis of deficits and inequities with proposals for sustainability and fairness

The Social Security Pension System of North Cyprus is experiencing a pronounced deficit, with a pattern of structural imbalances that necessitate immediate policy attention. Our analysis reveals a consistent deficit averaging 50% of social security pensions paid, or 3.2% of gross domestic product (GDP). Given the aspirations of North Cyprus to join the European Union, correction of these imbalances at an early date is imperative. Women, because of their longer expected lifespan, receive a 5% higher subsidy than men earning equal incomes through their working lives. However, lower-income individuals (often women) are at a critical disadvantage in terms of the monetary value of the subsidy received. The system's dependence on general budget financing points toward a non-sustainable future. At the same time the Provident Fund, to which all employees are required to contribute 8% of their declared incomes, is a systematic mechanism for reducing workers' savings in an inflationary environment. Workers contributing to the Provident Fund over the past 13 years will receive back from the government only between 40% and 49% of the value of what they could have cumulated from a 3% or 0% real return alternative investment that received the same tax treatment. This article crystallizes the critical findings and suggests policy recommendations for the substantial pension system reform that is necessary to ensure fiscal sustainability and equitable treatment of all income groups.