The intensive dialogue of recent days on the revised pension reform bill confirms something very important: the State, employers and employees, despite their legitimate differences in approach, share the same goal. Everyone wants a system that secures a decent standard of living for tomorrow's pensioners and remains sustainable for future generations.

Alongside the First Pillar, the Social Insurance Fund, the Second Pillar is also rightly at the centre of the debate: provident funds and occupational pension schemes. Social partners, independent institutions and the academic community have each highlighted its importance from their own perspective. Notably, the Chair of the Fiscal Council, Mr Andreas Charalambous, recently pointed out that the long-term sustainability of pensions in Cyprus requires the gradual strengthening of the Second Pillar.

The Second Pillar is not starting from scratch: at the end of 2025, provident funds were managing €4.65 billion on behalf of some 146,000 members, according to the Ministry of Finance. There is, however, considerable room to strengthen it. According to University of Cyprus Professor Andreas Milidonis, Cyprus's post-retirement income replacement rate stands at around 41%, close to the bottom of the EU, while more than 300,000 workers lack adequate Second Pillar coverage.

The final design, namely the scope of participation, its mandatory or voluntary nature and the timetable, is a matter for social dialogue. Wherever that dialogue leads, one question will remain common to all: how do we ensure that workers' savings are managed transparently, safely and professionally, at reasonable cost and without a disproportionate administrative burden on businesses, particularly small and medium-sized enterprises?

The Cyprus Investment Funds Association (CIFA) is following developments with full respect for the tripartite social dialogue. It is not our role to take a position in the negotiations or on the design of the Second Pillar.

Our role is to make available to the State, the social partners and the management committees of provident funds the solutions offered by the investment fund sector: solutions that complement the existing institutional framework for provident funds and operate under the supervision of the competent authorities.

UCITS: A Proven European Standard

Managing retirement savings leaves no room for experimentation. Tried and tested, strictly regulated structures already exist, such as Undertakings for Collective Investment in Transferable Securities (UCITS). This is a European standard with a track record spanning decades, internationally recognised for its strict supervision, transparency and investor protection.

Their use by provident funds can offer significant advantages:

1. Professional management and diversification. The UCITS framework sets strict limits on where and how capital is invested. Broad diversification limits the risk associated with concentrated, individual holdings.
2. Transparency and supervision. The value of fund units is calculated regularly, usually daily, and made public. Their operation is overseen by the supervisory authorities, while their assets are held in safekeeping by an independent depositary.
3. Cost transparency. Charges are disclosed in a standardised way so that they can be compared. This strengthens competition for the benefit of members.
4. Less red tape for businesses. Through solutions such as multi-employer provident funds, which already operate in Cyprus, small and medium-sized enterprises can offer their employees an occupational fund at lower administrative cost, entrusting investment management to licensed professionals. The trend is already clear: in 2025, the 12 multi-employer funds increased their membership from 80,000 to 89,000 and their assets from €1.40 billion to €1.98 billion.
5. Protecting purchasing power. Over time, a well-diversified investment policy allows provident funds to seek to preserve the value of savings against inflation.
6. Options tailored to members. Funds can offer age-based investment profiles, with risk gradually reduced as retirement approaches.

No investment is risk-free, and values can go down as well as up. That is precisely why professional management, diversification and a long-term horizon matter so much.

The Role of Alternative Investment Funds (AIFs)

Alongside UCITS, Alternative Investment Funds (AIFs) can also play an important role. The long-term horizon of retirement savings is well suited to their nature. They provide access to areas of the real economy that are not easily reached through traditional markets: infrastructure, energy, the green transition and innovation.

In the same spirit, European Long-Term Investment Funds (ELTIFs), under the revised European framework of 2023, were designed precisely to channel long-term capital into such investments, with uniform European investor protection rules.

Their inclusion in provident fund strategies must be measured: a limited share of the portfolio, careful attention to liquidity so that members receive their benefits when they are entitled to them, and rigorous risk assessment. Under these conditions, better long-term returns can be pursued for future pensioners. At the same time, part of domestic savings can support the growth of the Cypriot economy, creating a virtuous circle. Already today, 170 of the 233 active investment funds supervised by the Cyprus Securities and Exchange Commission (CySEC) invest wholly or partly in Cyprus, with investments exceeding €2.9 billion at the end of 2025.

The Foundations of Trust

Workers' trust is the foundation of every pension system. Whichever model is chosen, certain principles are common: strong and independent supervision, sound governance, transparency on costs and returns, and meaningful information for members.

The investment fund sector already operates on these principles, under the supervision of CySEC. We stand ready to work closely with the Registrar of Institutions for Occupational Retirement Provision and the management committees of provident funds, sharing our expertise wherever it is needed.

Ready to Contribute

Cyprus's investment fund and asset management sector has come of age. With €11.2 billion in assets under management at the end of 2025, according to CySEC, it now has the scale, the expertise, the international partners and a strict European regulatory framework to make a meaningful contribution to strengthening the Second Pillar.

Legislation for the First Pillar is at its final stage, with implementation targeted from 2027. The dialogue on provident funds is opening now and will, understandably, take its time. Whatever framework is agreed, the investment fund sector will be ready.

It is not our role to shape policy. We are here to offer employers, workers and provident funds modern, transparent and reliable European tools, making a tangible contribution to a truly sustainable future.