Guest blog: Peter Barnett – Italy’s baby retirees leave a costly legacy

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In a March 2011 circular for the ILC Global Alliance called Retirement Age [1], Craig Berry from ILC-UK commented that in response to population ageing, exacerbated by long-term budget deficits in many countries, governments around the world are seeking to raise retirement ages, or the age at which state pension payments are available to citizens. These reforms have been justified by most governments on the basis that increasing life expectancy (one of the main causes of population ageing) means more people will enjoy retirement for longer, and therefore should work for longer in order to fund their retirement.

The Wall St Journal [2] recently commented on the dramatic response of the new unelected Italian Government to Italy’s economic crisis, the centrepiece of which is a significant increase in retirement age. This year, Italy’s retirement age of 65 years will be extended to include women, but only in the public sector. For women in the private sector, the age will rise steadily from the current 60 years to 65 and eventually higher. The revised statutory retirement age (SRA) as of 2013, is 66 years and three months (13 months higher than Germany). By 2046 Italy’s SRA will be 69 years and 7 months.

Due to legacy programs from previous decades more than half a million Italians will spend half their lives receiving pensions. Some half a million Italians began receiving public pensions before turning 50 years old, and 240,000 did so before turning 45. The pensions in question represent an outlay of €9.5 billion a year, more than those of people who work until 65. But their real cost is even higher as beneficiaries of schemes begun in the 1970s and 1980s spend 48% of their average life span receiving public money, the total cost of the legacy schemes to €149 billion. In 2009, 23.8 million Italians were receiving pensions, amounting to €253 billion or 16.7% of gross domestic product that year.

Elsewhere, the Washington Post [3] reports on a poll, conducted during the first days of the new government, which finds that 93% of Italians polled said reducing the public debt was either an “extremely” or “very important” goal for the government to tackle and only 2% said it was “not too important” or “not at all important.” Despite apparently prioritising cutting the country’s public debt, few Italians are willing to make personal sacrifices, like retiring at age 67 instead of 65. Indeed, only around a quarter of Italians favor reforming labor laws to make it easier to fire workers, or raising the retirement age — considered critical to curb Italy’s public spending and boost economic growth.

Italy is in a serious position because it has one of the highest older to younger population ratios in the world. In 2010 20.2% of the population was 65 years and over. [4]. Moreover Italians are healthier than most other nationals and live longer. Male life expectancy at 65 is the 4th highest in Europe, mortality rates from all causes of death are the 2nd lowest and Italian smoking and alcohol consumption rates are lower than the EU average [5]. While total Italian health expenditure per capita, public and private, was €2463 in 2008, very close to EU average, total health expenditure as a share of GDP was 9.1% (the EU average was 8.3 %). Thus with a population of 60 million, comparable to Germany France and the UK, and higher health costs, the combination of longevity and physically healthier people has very significant implications for their economy. Just looking at one condition associated with old age gives a very good indication of what Italy is facing. In 2006 the prevalence of dementia in the Italian population aged 30 years was 1.7%, the 2nd highest in Europe. This dementia incidence is expected to increase, piling even more pressure onto a creaking health system.

The rest of Europe and the world can only watch and see if this experiment in using increases in retirement age as a proxy for austerity is successful, or if as many commentators suspect the ensuing social stresses will prove so huge that they overwhelm Italy’s already delicate democratic institutions.

Peter Barnett

1. Retirement Age. An ILC Global Alliance Circular, March 2011
2. Italy’s Baby Retirees Leave Costly Legacy. Wall St Journal, 28th Oct. 2011 & Italy Pledges Fast Change To Raise Retirement age: Christopher Emsden, WSJ, 15th Nov. 2012
3. Cutting debt a top priority for Italians, but few want to raise retirement age, ease labor law. Washington Post, 23rd Nov. 2011
4. The World Factbook. CIA 2001 ISBN 1574883461
5. Health at a Glance: Europe 2010. Eurostat – OECD, European Union, Dec 2010

2 thoughts on “Guest blog: Peter Barnett – Italy’s baby retirees leave a costly legacy

  1. Increases in retirement age are going to affect us all drastically with older people working longer to afford the cost of living there will be less jobs for the younger generation. Myself, I can’t see being able to retire anyway.

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