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Italy pension overhaul to get unions' input

By Elisabetta Povoledo, International Herald Tribunne

September 24, 2003

The Italian government said Tuesday that it was open to discussing pension reform with Italy's labor unions - which had threatened this week to call a general strike to protest measures to keep workers on the job longer - but it gave no indication that it would budge on planned changes to the country's bloated social security system. After meeting with labor unions and industrialists to discuss the 2004 budget, which seeks to raise E16 billion, or $18.4 billion, from spending cuts and revenue measures, Welfare Minister Roberto Maroni said consultations on pension reforms would likely begin Thursday.

But union leaders reiterated their intention to strike if the government pressed forward with its reforms. .

"Should the government go through with its choices, then a forceful initiative will become necessary, even a general strike," Giglielmo Epifani, the leader of the leftist CGIL, Italy's largest union, said after the meeting. .

Earlier this year, widespread and at times violent strikes met attempts to modify pension plans in France, but these did not deter Prime Minister Jean-Pierre Raffarin from pushing the reforms through before the August break. And unpopular welfare cuts, including recommendations by a Germany government commission to raise the retirement age to 67 and increase pension contributions, have been blamed, in part, for Chancellor Gerhard Schröder's electoral rout in Bavaria on Sunday, when his center-left Social Democrats fell 10 percent to 18.9 percent, well behind the conservatives.

Italy's pension package is expected to be announced, along with the 2004 budget, at a cabinet meeting this month. As widely reported in the press, reforms that will go into effect in 2008 will force workers to pay into the pension system for at least 40 years - compared with 35 years now - before they can claim full benefits, regardless of age. The minimum retirement age for pensions could also be raised, to 65 for men and 60 for women. .

To stem a possible flood of retirement requests before the reforms go into effect, the government could introduce a bonus of slightly less than a third of a worker's final salary - now withheld as social security contributions - for those who stay on the job after they are eligible to retire. Incentives would be introduced as early as next January. The government's plan also includes immediate stimulus for private pension funds and a streamlining of the current system: In recent weeks the welfare minister announced widespread crackdowns on privileged retirement packages and on presumed pension fraud, especially with regard to disability pensions. .

Prime Minister Silvio Berlusconi has cited pension reform as an important priority of his center-right government. But the political sensitivity of the issue has opened a rift among the partners in his four-party coalition - particularly with the Northern League - and Berlusconi has not forgotten that pension reform was at the root of the government crisis that ejected him from office in 1994. .

But with about 14 percent of Italy's gross domestic product being gobbled up by pensions, the highest in Europe, reform has become a pressing issue, especially in light of the country's rapidly aging population, longer life expectancy and negative birthrate. .

The last significant pension reform was enacted in 1995 under Prime Minister Lamberto Dini. It changed the system from one defined on benefits to a contribution-based system, and many labor union officials - who represent 11 million Italians, most of them retired - claim that these reforms have gone far enough in amending a system that until 10 years ago allowed some people to retire after 15 years in the workplace. .

But industrialists and economists have already criticized the current reform as not being sufficiently bold. .

"This is the start of the reform, not the reform itself, right?" Antonio Fazio, the governor of the Bank of Italy, asked Treasury Minister Giulio Tremonti this week after he spoke about the reforms during a news conference at the International Monetary Fund/Group of Seven meeting in Dubai, where Italy committed itself to pension reform. .

The government claims that by increasing the retirement age and minimum number of contribution years, it will save some E12.5 billion a year, or 1 percent of the gross domestic product, starting in 2012.