ITALY - The Italian government has delayed and "watered-down" pension reform proposals so much they will do little to resolve the huge financial burden of the current system, Watson Wyatt has claimed.

Italy is trying to encourage and incentivise supplementary pension provision at the moment, to try and reduce the liabilities on the state while at the same time attempting amendments to the existing public system, which consists of three pillars.

But Livio Mocenigo, managing consultant of Watson Wyatt Milan, said Italy has such a notoriously poor track record for implementing pension reforms, it came as little surprise when essential early retirement changes were reversed and important measures to reduce the unsustainable pension deficit were postponed.

Importantly, the government confirmed in its recent review of pension reforms it is delaying the review of annuity rates for the DC notional scheme until 2010, despite the fact the calculations were meant to be reviewed in 2006, 10 years after the scheme was first introduced.

Mocenigo said: "When the annuity rates were put in place 12 years ago, the life expectations for both women and men were lower, so as time has passed the rates guaranteed by the government are outdated and too generous."

He pointed out although the review was scheduled for 2006, pensions were a "hot potato" and the fact that pensions would be reduced by any revisions meant the government kept "procrastinating".

The changes, which only affect people who entered the workforce from 1996, could cut pension income by between 6-8% depending on the effective retirement age, yet the government has again postponed reforming the terms.

Another proposal, agreed by the previous Berlusconi government in 2005, was to increase the pensionable age for people eligible for the early retirement pillar from the current minimum of 57 years of age, providing they have 35 years of contributions.

Instead, the government planned to bring the early retirement age in line with the old age pension - 60 for women and 65 for men - and to make the change overnight starting January 1 2008.

But when the current government came to power in 2006, unions and parts of the government coalition lobbied for the changes to be removed, so although the proposals were included in the Welfare Protocol in the 2008 Budget, the reforms have not come into effect.

Instead the government plans to phase-in the increased retirement levels, so the age rises to 58 in 2008, to 59 in around 18 months time and the initial proposal of 60 years of age will not be reached until 2010. (See earlier IPE story: Italian chamber clears pension reforms)

He added that while it was good news for people retiring now, it is not good for the rest of the country, as the taxpayers are the ones who are paying for the deficit in the generous public system.

That said, Watson Wyatt warned because Italian pension policy depends on who is in power employers should encourage employees to think more about saving for their own retirement, as there is a communication issue because if workers "don't understand the impact of the reforms they won't know what to do".

Mocenigo added: "Every time public pension are touched there should be a reaction from employers. The role of the supplementary pension will undoubtedly grow and thrive and become one of the major attraction and retention elements in competing for the best young talent."

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