The social insurance scheme in Cyprus is based on the Social Insurance Law of 1980, with amendments and regulations issued thereafter, and has the objective of protecting insured persons from financial hardship. Some of the benefits provided by the social insurance scheme are: old-age pension, social assistance, unemployment and maternity benefits, as well as grants for marriage, childbirth and compensations for industrial accidents.
In this article, we shall look into the old-age pension as applicable to non-EU countries nationals (say, Russia expatriates) who come and work in Cyprus for some years, after which return in their home country.
All workers employed in Cyprus, irrespective of their nationality, are compulsorily withheld 6.8% of their earnings as a contribution to the social insurance fund. Also, the employer and the Cyprus government, respectively contribute 6.8% and 4.3% to the fund, making the total contribution equal to 17.9%. The fund is run by the state and used to pay various social benefits (unemployment, pension, maternity etc.).
Without discrimination, Russian expatriates and their family members can enjoy all applicable social benefits while legally residing in Cyprus and making contributions. However, when it comes to old-age pension, in the event the expatriate leaves Cyprus, social insurance contributions will not be paid in cash (or otherwise) or transferred to the Russian pension scheme. The contributions will remain in the fund until pensionable age is reached (65) and several conditions met before payment. One of those conditions, applicable to those reaching pensionable age between 3 January 2010 and 1 January 2012, is the contribution of social insurance for at least 7 years. As from 2 January 2012, the contribution condition is increased to 10 years, effectively making it more difficult to gain Cyprus pension from temporary employment in Cyprus.
The changing demographics and economics of the social insurance scheme make it hard to predict what will be the social insurance legislation in the next 20-30 years. Pensionable age may be raised to 70 years, contributions increased by more than currently anticipated or Cyprus and Russian may enter into a bilateral agreement extending their social benefit to those who move between the two countries.
In most cases, social insurance contributions by Russian expatriates will be “lost” and years of employment in Cyprus not credited in Russia, representing a major drawback for those whose retirement plan is entirely based on state pension income. Therefore, depending on the case, one may need an adjustment to the retirement plan to adequately compensate for the reduction in state pension income. Some possible venues for putting money for the long-term and reducing taxable income at the same time, maybe: contributions to approved provident fund and term/life insurances. You should contact your tax consultant for further advice.