BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
    You are in: Business  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
E-Commerce
Economy
Market Data
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
 Friday, 20 December, 2002, 08:34 GMT
Italy's pensions timebomb
Emanuela Foglietta
Emanuela Foglietta wishes she had been born earlier
Frances Kennedy

The United Kingdom is not the only country in the middle of a pensions crisis. Italy, with a low birth rate and a high proportion of the elderly, has worries of its own.

When 28-year-old Emanuela Foglietta looks at the deductions on her monthly pay cheque she wishes she had been born half a century earlier.

I'll just have to have lots of children and hope they will support me in my old age

Emanuela Foglietta
"I shall have to keep working till I drop dead at this rate," says Ms Foglietta, who works at a telecom help centre near Rome.

"Because even if the state pension system survives there will be only crumbs left for us."

Like many other young people, Ms Foglietta is a victim of Italy's pension timebomb.

Her regular contributions to the state fund are gobbled up to finance current pensions.

Old certainties vanish

As the ratio of pensioners to workers increases, the younger generation will bear an increasing financial burden.

And they can forget the comfortable state pensions enjoyed by their predecessors.

Ms Foglietta's grandmother receives a generous government pension of 1,500 euros (954; $1,540) a month.

Her mother, a teacher, retired 10 years ago aged 50 and draws around half that amount.

"Retiring early she settled for a lesser pension but she got out just in time" says Ms Foglietta, ahead of drastic changes to one of Europe's most generous pension schemes.

Until 1995, all pensions were indexed to salaries and employees could finish their days with a pension equivalent to 80% of their final salary.

Warnings ignored

"The system was a complicated patchwork with pockets of privilege," says Daniele Pace, a pensions consultant who helped draft the 1995 reform.

"We had the famous 'baby pensioners' who could stop work after just 20 years, pensions based on seniority, pensions based on age, special conditions for certain categories, such as people in the navy, even if they had spent their careers behind a desk not in a submarine."

The system functioned while Italians were still having lots of children and there was economic growth.

Recurrent warnings that the system was unsustainable went unheeded until the early 1990s when Italy's public finances required drastic measures.

Demographic timebomb

The state provisions for retirement were already struggling because of demographic changes.

Early retirement has traditionally been used as a social shock absorber by industries in crisis

Daniele Pace
With a cripplingly low birth rate and the highest percentage of old people per capita in the European Union, Italy's situation is going to worsen.

Increased life expectancy does not help. Women, whose current life expectancy is 81, can stop work at 60.

In 1995 Italy's pension calculations changed from salary-indexed to contribution based - in other words, you get out what you pay in.

Those already working had their pension until then based on salaries, and in future on contributions. New entrants went straight onto the new system.

"The reform was radical and the savings will be immense," says Mr Pace.

"The problem is that they won't be felt for several decades."

Options limited

For critics, including Antonio Fazio, the governor of Italy's central bank, the measures are insufficient.

Pensions currently eat up an estimated 13.6% of gross domestic product, a proportion expected to increase to 15% by 2015.

The options open to the current coalition government are limited. They could extend the new contribution based system even to those near retirement but that would be politically unpopular.

They are considering liberalising the retirement age and offering incentives to those who remain in the workforce.

"In the late 1990s there was an exodus of people near retirement age," says Daniele Pace.

"Early retirement has traditionally been used as a social shock absorber by industries in crisis, and that puts more pressure on the system."

The government is urging people to take out private pension schemes but that market is still in its infancy.

Emanuela Foglietta would like to take out a private pension plan but because she is on short term renewable contracts, she is reluctant to take on such a commitment.

"I'll just have to have lots of children and hope they will support me in my old age."


Government plans

Help and analysis

Case studies

TALKING POINT
See also:

18 Dec 02 | Business
19 Dec 02 | Business
17 Dec 02 | Business
Internet links:


The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.


E-mail this story to a friend

Links to more Business stories

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes