ITALY - Recent pension reforms agreed in Italy have failed to render the country's fiscal outlook more sustainable, Standard & Poor has found.

The analysts said it has maintained Italy's sovereign credit ratings at A+/Stable/A-1+ despite a pension reform deal.

The gradual rise of the statutory retirement age to 61 by 2013 will "significantly increase the sovereign's already substantial debt burden" as the demographic pressure grows, said S&P's credit analyst Trevor Cullinan.

He added the deal reached last week also lacks incentives for older workers to stay in the labour market.

Together with the decision to postpone updating the coefficient - a formula intended to bring Italian pension entitlements in line with rising life expectancy - the recent agreement to 2010 "is further highlighting the government's inability to tackle Italy's fiscal challenges", Cullinan pointed out.

In 2006, S&P downgraded Italy's long-term sovereign credit rating from 'AA-' to 'A+', noting the 2007 budget bill "would weaken the hand of reformers within the fractious coalition".

The move followed a pre-election promise by the current government, under Romano Prodi, to change the 'so-called' Maroni law which stipulated an abrupt increase in the retirement age to 60 in 2008 from the current level of 57.

Keeping this election promise "illustrates the inherent weakness in the unwieldy governing coalition with regard to introducing structural reforms of key expenditure programs", S&P noted.

Under the new law on retirement, which has yet to be approved by parliament, the retirement age will rise to 58 in 2008. After that a "quota" system will apply.

"The quota will be the sum of the minimum age of retirement and the number of years of contributions required to be eligible for a pension," S&P explained.

By 2013 people with 36 years of pension contribution will be able to retire at 61.

"The steady increase in the minimum retirement age will nevertheless go some way to support the ailing public pension system, which will come under significant pressure due to worsening demographics," added Cullinan.

Italy's dependency ratio is set to increase from 29% in 2004 to 62% in 2050, according to European Commission estimates and pension spending in Italy will also be among the highest in the European Union.