The pension systems of Northern Cyprus: Deficits and proposals for sustainability

Abstract The Social Security Pension System of Northern Cyprus faces a significant deficit, with structural imbalances needing urgent policy interventions. The annual deficit is approximately equal to 50% of current pension payments, or 3.2% of GDP. Without a reform, this deficit is expected to continue and may pose a critical obstacle to Cyprus’s EU integration aspirations. The objective of this article is to design a reform to finance this component of the pension system that will address both current and longer-term sustainability. The paper employs a methodology of public sector budgetary accounting and actuarial estimation of the pension deficit under various scenarios. The findings show that the employees’ Provident Fund assets’ vulnerability to the rate of inflation provides an opportunity to combine the contributions of both components of the public-administered pension systems. Such a measure, along with some parametric reforms like increasing the retirement age, would address the current crisis and ensure the future sustainability of the Social Security Pension System.