Greece is in need of radical reforms to its pension system if it is to cease being a burden on longer-term fiscal sustainability, and to prevent a rise in pension costs that would otherwise see these accounting for more than 20 per cent of GDP by 2050, warns the Organisation for Economic Co-operation and Development (OECD).

In its Economic Survey of Greece for 2009, the OECD says the country's high public debt, which stands at around 100 per cent of GDP, is not being helped by the pressure Greece's generous system is putting on the economy, and reforms are necessary.

The survey says that the country's pension burden, as well as fiscal policy problems, is reflected in a rise in sovereign interest rate spreads in comparison with Germany, as an example. Both revenue-enhancing and expenditure-containing measures must be considered in terms of fiscal consolidation.

Although recent reforms have been welcomed and are seen as a step forward, they are not sufficient to stem this rise in costs. Reforms saw the merging of pension funds in 2008, scaling their number back from 133 to 13, and reductions in some early retirement incentives, particularly for mother of dependent children. The OECD said these will help to rationalise the system and to improve the supervision of schemes.

The survey stated: 'The efforts to bring uniformity to the operations and parameters of recently merged funds, standardise their accounting rules and computerise the system should continue.'

The labour market, the survey said, would also benefit from regulatory changes and financial incentives, in order to keep seniors working.

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