Italy makes another attempt at pension reform as debt worries mount

Italy is working on a reform to make it easier for workers to retire early without bloating Europe’s second-highest pensions bill as rising borrowing costs fuel concern about the country’s huge public debt.

Officials said that Mario Draghi’s government wants to inject more flexibility into the system while avoiding the fate of the unpopular 2011 reform that  raised the retirement age steeply but was suspended in 2018 after a backlash.

A temporary replacement expires at the end of the year. Finding a permanent fix has been given added urgency as a period of low borrowing costs for Italy appears to be ending.

Draghi aims to clinch a deal with unions on the reform by end-March. A key meeting between ministers and unions is due next week. He needs the backing of his multiparty coalition, meaning this former European Central Bank chief has tough negotiating ahead.

Labour minister Andrea Orlando told Reuters the reform would not be one-size-fits-all. “It will take account of different life expectancies, of the situation of domestic workers and women, and the fact that working lives are often not continuous,” he said.

With one of the world’s oldest populations, Italy spends more on pensions than any other European country except Greece, according to Eurostat data. According to the treasury, Rome’s pension bill reached a record 17% of national output in 2020.

The new reform will be the seventh pensions overhaul in recent decades as Rome grapples with the economic effects of its ageing population.

The high pensions outlay crimps resources available for more productive spending on things such as schools and infrastructure investment, and makes it hard to reduce public debt of about 150% of GDP.

RISING BOND YIELDS

The debt, proportionally the second-largest in the eurozone, is  becoming harder to service. Yields on Italy’s 10-year government bonds have spiked at almost 2%, from below 1% two months ago, due to the prospects of the European Central Bank ending its asset purchases and raising interest rates.

In essence, people wishing to retire early will be able to do so on the understanding that their pensions are limited by the amount they have paid into the system, the officials said.

Unions back this approach. What will be harder to agree is how much pensions will be reduced for those who leave work early.

Rome plans to expand mechanisms already in place which allow the unemployed, the disabled, carers and people with “strenuous” jobs to get early pensions. This is something the unions have called for.

Roberto Ghiselli, a national co-ordinator of the country’s main union, the CGIL, praised the decision to explore ways to allow early retirement, but said Rome should also set aside enough resources to ensure pensioners have an adequate income.

The treasury, which has targeted a steep fall in borrowing this year, has a difficult circle to square. It is opposing pressure from coalition parties to hike the deficit, meaning any extra pension outlay must be offset with taxes or spending cuts.

A 2018 scheme, known as “quota 100”, allowed people to draw a pension at age 62 if they had contributed for 38 years — the sum of the two figures giving the “100” of the scheme’s name.

After fraught negotiations in the autumn triggered a one-day national strike by the CGIL, Draghi introduced “quota 102”, raising the minimum retirement age by two years to 64, but for this year alone.

The CGIL’s Ghiselli said the government rejected  the union proposal to let people draw pensions after contributing for 41 years regardless of their age.

Reuters