At this roundtable session dedicated to the future of Italy’s pension system, it was observed that population aging, the impending retirement of the baby boomer generation, the prolonged period of economic stagnation currently being experienced and dwindling public resources are driving Italy, as well as most other developed nations, to tackle questions regarding the relationship between the role of public and private social security schemes. Today, pensions, healthcare and welfare, in their various forms, are no longer being delivered solely by the state. Indeed, the expanded range of offerings has laid the foundations for a diversified system, within which individuals are increasingly being called upon to take decisions for themselves, thereby reaping the benefits but also running the risks of investment choices made with a view to protecting their own future.
It was stressed that the key aspect in dealing with the issue of pensions in particular is, naturally, that of striking the necessary balance between sustainability and ensuring adequate pension coverage. The debate regarding how to go about reconciling these two principles is – it was conceded – varied and complex, and not just in Italy. The issues to be taken into account include the possibility of reviewing the retirement age, the linking of pension entitlements to life expectancy, and the administration of minimum non-contributory pension benefits (the so-called “zero pillar”) for those less fortunate in society. It was felt that the common factor in all these issues is that a balance between adequacy of coverage and sustainability can only be pursued through the joint efforts of the public and private sectors, and that an increasingly central role will necessarily be played by supplementary pension schemes.
In terms of sustainability, it was noted that the Italian pension system is starting to see previous hard-hitting reforms – that were in some respects groundbreaking in Europe – come to fruition. These include the move in 1995 away from a PAYG defined-benefit pension system to a PAYG notional defined-contribution scheme, the reform of severance payments in 2005, and the most recent change raising the public sector retirement age. However, it was recognized that these reforms have not produced the expected results in terms of fostering the development of supplementary pension schemes, with only a small percentage of the Italian workforce having joined a private pension plan as at 2011. In addition, those professional categories and segments of the population that were considered most likely to benefit from supplementary pension benefits remain underrepresented among members of such plans.
The participants were at pains to highlight that although the root cause of the slow pace with which second “pillar” pension schemes have grown in Italy can be put down to Italians – and especially younger workers – lacking knowledge or awareness regarding the implications of the various pension reforms on their future, the transition period will see an ever-increasing gap between those who enjoy benefits under a generous scheme established in the past and those who will in contrast be excluded from it.
There was thus a perceived need among the participants for an intergenerational pact for cohesion and growth – one aimed at transforming the role of the state from that of providing pensions to guaranteeing transparency and the availability of information regarding pension entitlements, of promoting financial literacy (particularly amongst the younger generations), and finally, of facilitating the development of forms of supplementary pension schemes. It was felt that the state could, for instance, make a valuable contribution in respect of the latter by bolstering tax incentives, and by overhauling and simplifying the regulatory framework, including as regards applicable solvency requirements. However, the market and private operators were also called upon to expand their offerings in this area, to step up their efforts in providing customer advice and assistance, and to improve the transparency and simplicity of their products.