Matteo Renzi’s early pensions proposal draws mixed reactions
A proposal by Mario Renzi, Italy’s prime minister, to allow workers to claim their state pensions early is likely to please tens of thousands of Italians who have seen their retirement age drift higher. But some in Rome fear it will provoke the ire of Brussels amid concern over Italy’s public finances.
Mr Renzi’s plan, which would allow pensions to be paid up to three years early, is aimed at increasing generational turnover in Italy’s labour market and tackling stubbornly high youth unemployment.
The prime minister floated the idea during a live Twitter discussion earlier this month and said he would aim to include the measure in next year’s budget, which is due to be presented in October.
The plan — whose details have yet to be finalised — will be welcomed by Italian businesses eager to replace older, disenchanted staff with younger, keener employees.
“This accommodates people’s preferences without having any big impact on our public finances. And companies may benefit as well — it could help generational turnover and boost productivity,” said Tommaso Nannicini, a senior economic adviser to Mr Renzi.
But for pensioners, the proposal — which would allow retirement at 63.7 years instead of 66.7 years — comes with a catch. To avoid weighing on Italy’s public coffers, a penalty of between 1 and 4 per cent would be imposed on early retirement cheques, say Italian officials.
This would either be paid by individuals, or in certain circumstances such as in cases of disability, by the government, or by companies whose employees took early retirement because of a restructuring.
The prospect of a penalty has drawn opposition from Italian trade unions. “These are very low pensions already, so a penalty would hurt a lot, it would be a punishment,” said Massimo Gibelli, a spokesman for the CGIL, Italy’s largest trade union. “People don’t retire because it’s a privilege, but because they can’t handle work any more.”
The scheme could also spark concern in Brussels. Although the penalty is expected to make it budget-neutral in the long run, it would involve higher short term outlays — of as much as €1.6bn in the first year up to more than €6bn in 2021, according to figures from INPS, the national pensions administrator — to cover the cost of workers drawing pensions earlier than originally planned.
But some in Rome fear the EU might see this as an unwinding of reforms passed by Mario Monti’s technocratic government at the height of the eurozone crisis in 2011, when Rome was under pressure to rein in public spending. Mr Monti’s changes to pensions, which lifted the retirement age, were widely welcomed by international institutions as putting Italy’s welfare system on a sounder footing.
But observers suggest the overriding goal for Mr Renzi, who took office in early 2014 with a mission to revitalise the country after years of economic stagnation and recession, is to find a way of tackling youth unemployment, which fell to 36.7 per cent in March but remains well above the EU average of 21.2 per cent.
Tito Boeri, an economist who heads INPS, supports the plan. “It relies on incentives instead of rigid constraints and introduces freedom of choice,” he said. “If you force employers to keep people who are less and less productive, are not motivated, have already planned to leave and are just waiting to retire, that is a cost for the firm, making it less profitable and less likely to hire young workers.”
Stefano Scarpetta, director for employment, labour and social affairs at the OECD in Paris, said that across advanced economies there was “no evidence” that early retirement generated more jobs for young people in the long term.
But the issue was “absolutely relevant” for Italy in the short term because of the impact of the Monti reforms, he said, adding: “Some employers might replace early retirees with younger people.”
Meanwhile, Mr Renzi’s team is considering creative ways of financing the plan to eliminate any impact on Italy’s budget and allay Brussels’ concerns. One emerging idea is doing so through bank loans so the government would avoid putting money up front. But that has drawn scepticism from trade unions and some opposition politicians.
“It’s fine to have pensions flexibility but at what price for workers? With banks loans and other policies, the only ones to gain are banks and insurers,” Gabriella Giammanco, a lawmaker with the centre-right Forza Italia party, tweeted recently.
On the streets of central Rome, however, the idea of flexible retirement was generally supported.
“Personally I would retire, I can't wait . . . Even if I’d probably lose money,” said Sabrina, a 55-year-old high school teacher who declined to give her surname.
Claudio, a 53-year-old taxi driver, was not so sure: “I have to know how much money I’m going to lose. If it’s too much I’ll work three extra years — otherwise what am I going to eat afterwards?”