29 May 2014

Freedom of Service and domestic insurers that write general insurance business in Greece must currently apply a contribution of 1% or 2% on the taxable premium (exemptions apply on certain conditions). In addition, domestic insurers must also apply a 6% contribution based on the employees’ total wages. This premium tax is an insurer-borne tax i.e. it is not charged directly to the policyholder and, to all intents and purposes, is treated as an operational cost of the business. The TEAA PAE Fund was set up to finance the pension contributions of employees working in the insurance sector and is widely regarded in Greece as a financially healthy, solvent private Fund. The Fund is one of many similar Pension Funds in Greece that include a Pension Fund for Civil Servants, a Navy Retirement Fund, a Fund for employees of the National Printing Office and so on. 7 April 2014, the Greek Government passed legislation that will consolidate the various Pension Funds and replace them with three specific Funds. This is part of an overall initiative by the European Union, the European Central Bank and the International Monetary Fund. The intention of the legislation, Law 4254/85 (Government Gazette), is to abolish the TEAA PAE and other Pension Funds with effect from 1 January 2015. The news came as a surprise to the TEAA PAE and other Pension Funds. FiscalReps met the TEAA PAE Fund on 26 February 2014 and there was no knowledge of any imminent changes at the time (except the revision of existing TEAA PAE legislation over the next year).
No one is sure how the new Funds will operate and how they will raise revenue in the future. For example, will the new Pension Funds continue to levy a contribution on insurance premiums or will revenue be raised elsewhere? If there is a contribution on insurance premiums, will the rates increase if revenue needs to be raised for three consolidated Pension Funds rather than one specific Pension Fund? This is all speculation but, in the meantime, the TEAA PAE informed FiscalReps this month that it intends to contest the new legislation and retain its status as a private Fund. FiscalReps will keep clients updated on events.