taly's High Quality of Life and Strained Pension Plans

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Italy's High Quality of Life and Strained Pension Plans

By ERIC SYLVERS, New York Times

August 20, 2003

MILAN, Aug. 19 - Amelia Antonetti retired nine months ago after 31 years as a high school teacher and now spends her days looking after her husband and three grown children. All the while, Mrs. Antonetti, 56, collects 90 percent of her last salary and will do so for the rest of her life.

The laws that let Mrs. Antonetti retire when many countries would still consider her to be of working age have helped make Italy's quality of life among the highest in the world. Those same laws are stretching the country's pension system to the limit as the government struggles to pay its obligations to a rapidly aging population.

"I'm very happy I retired because I was tired, but now I'm worried about my children," said Mrs. Antonetti, who taught Italian literature in the northern Italian town of Parma. "They are going to have to work until they are well past 60, and then are there going to be any pensions for them when they get there? I doubt it."

Mrs. Antonetti is not far off the mark. Analysts say that if Italy - which spends about 14 percent of its gross domestic product on pensions, compared with a European Union average of 10 percent - is to stave off a financial collapse of the pension system, far-reaching change s needed.

To confront the pension problem, Italy can raise the minimum retirement age or create more jobs and permit more immigration. None of these options are particularly appealing to the prime minister, Silvio Berlusconi. He has been unable to reduce unemployment significantly from the current 8.8 percent and must deal with political allies who are intent on blocking moves to raise the retirement age and increase immigration.

In Italy, workers with 35 years on the job can retire if they are at least 57. Before a series of changes introduced in 1995, there was no age requirement, and some government workers were eligible to retire after as little as 15 years on the job. Government employees, like Mrs. Antonetti, will not have to meet the minimum-age requirement until next year.

These early retirement laws are more lax than in the rest of Europe, so it is not surprising that according to European Union statistics only 28 percent of Italians aged 55 to 64 work, compared with 38 percent in Germany and an average of 39 percent in the union.

Not only does Italy have a growing number of early retirees, the country also has a stagnant birth rate. At 1.3 babies per woman the rate is half that of 30 years ago and is among the lowest in the world. Italy's population has hovered around 58 million people for 20 years, and the government forecasts it will fall to 53 million by 2050.

That trend, which will shift the ratio of older to younger people, spells trouble for a system like Italy's, where today's workers pay the pensions of older generations. Italy's problem is made more acute by the fact that only 55 percent of Italians aged 15 to 64 work, compared with a European Union average of 64 percent.

"The reforms implemented so far aren't enough, and raising the minimum retirement age is one of the few tools available to the government to deal with the problem of more pensioners and fewer births," said Agar Brugiavini, an economics professor at the University of Venice.

The system is also strained by the special privileges enjoyed by some state workers, like employees of Sicily's regional government who can retire after 25 years on the job if they are male and after 20 years if they are female.

"For years, the Italian pension system has favored some workers over others," Ms. Brugiavini added, "but the most glaring example is today's older generations being favored over young workers and those that still have to enter the labor market."

While other European countries are facing a similar plight, many, including Germany and France, Europe's two biggest economies, have taken steps recently to overhaul their pension systems.

Private-sector employees in France must work for 40 years before they can retire. A law passed last month will push that to 42 in 2020 and will make government employees, who can now retire after 37 years of work, subject to the 40-year minimum beginning in 2008.

Germany is considering a proposal that would raise the retirement age for some workers to 67 from 65.

While most advocates of pension change agree that the solution is getting workers to work longer, many workers are adamant about defending their particular pension rights.

"Sure, I was young when I retired, but it's not people like me who are running the system dry," said Mrs. Antonetti, who several years ago used an option to pay a small fee to have her four years of university study credited toward her pension. "The problem is the people who retired when they were 40 after 15 years of work."