A final plan for the reform of Italy's pension institute, INPS (Istituto Nazionale di Previdenza Sociale), will be presented by the Italian labour ministry before the end of the year. The much-needed plans to restructure INPS, which are part of Italy's 2007 budget, show the government's commitment to control costs and to actively address the issues affecting the country's distressed pension system.

Labour minister Cesare Damiano said in late October that the final plan, to be announced by the end of the year, will entail separating the provision of pensions from the provision of life and other insurance.

Details will also be disclosed soon about the set up of FondInps, the fund that will ultimately manage workers' severance payments that have been left with their firms instead of being allocated with private pension funds, as part of this year's pivotal TFR (trattamento di fine rapporto) reform.

The minister has said that the structure of FondInps has been agreed and that it will only take a final green light from the finance ministry to kick start operations.

This means that the managers of FondInps should be named shortly. Currently, the size of the fund is €3.5bn but when contributions for the last months of the year and other inflows are included, the size should soar to €5.5bn in January.

The plans were announced last July after the government secured the support of Italy's three main unions, CGIL, CISL and UIL, which were against the plans initially. A huge number of central, regional and provincial INPS committees put pressure on the institute's finances and the rationalisation plans included in the draft budget involved the abolition of these committees, which are strongholds of the unions, in a move to reduce costs.

While the unions now agree with the proposal, INPS's president Gian Paolo Sassi has not granted his seal of approval, as he argues that some of the government's rationalisation plans are difficult to realise.

Sassi has three main reservations. First, he is sceptical about the plan to merge the pension institute with the other main pension bodies, for instance INPDAP, the public workers' pension body. As a result of the merger, the government hopes to obtain €3.5bn worth of synergies, as well as equally important intangible efficiencies.

However, Sassi argues that while synergies can be achieved, merging the entities will not achieve anything unless the underlying regulations, which are different for each body, are changed first.

As part of a cost-cutting programme, one of the proposals is to unify the institutes' headquarters, but Sassi points out that some of the buildings are not owned by the institutes and therefore the effort would not be cost-free.

Second, Sassi has said that the promise of a 60% payout to workers is unreasonable. The proposals entail a payout corresponding to 60% of a worker's tax contributions over their career.

This would be regardless of the type of work they had done over the years, whether employed or self-employed work, even though the amount of tax paid is different for each different category.

Sassi argues that the promised payout clashes with the contributive system, and that it is impossible to set up a ‘mixed' system based on contributions and payouts.

In this context, the government has set a 2010 deadline to revise the conversion ratio, the ratio used to weigh pensions against life expectancy. Sassi argues that this is too far away, and that the revision take place before 2010.

Third, Sassi has warned that the budget might have to be modified as one of the proposals was to scrap the current 5,000 per year cap to the number workers that could retire every year by meeting the softer set of requirements allowed by the pre-reform regulations.

If the 5,000 per year cap is lifted, more funds will have to be allocated to provide for those who will retire according to the more generous regulations in force before Italy's pension reform. The government has responded saying that it will amend the proposed law to make sure this category of workers is defined clearly.

Representatives of Italy's centre-right opposition have pointed at Sassi's remarks to discredit the government's active reform effort. However, he has expressed his appreciation for the government's commitment to achieve some tangible results.

The institute, which pays a pension to one in three Italian workers, presented its accounts at the end of October.

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