ITALY - The number applications to retire has dropped by nearly 10% in the first six months of 2004 following the introduction of a 33% tax-free bonus for older employees who chose to keep working.

The number of applications for retirement dealt by private sector social security institute, INPS, dropped from more than 164,000 in the first six months of 2003 to nearly 149,000 in the same period of 2004.

The decrease came as a surprise to INPS, which expected a pension rush until 2008, the year when the recently approved pension reform is implemented.

From 2008, the retirement age will pass from 57 years with 35 years of contributions to 60 years of age. From 2010 the threshold will be pushed up to 61 years for employees and 62 for self-employed workers and in 2013 it could be changed to 62.

According to the Italian financial press, the tax-free bonus for private sector employees, the only aspect of the reform which will be implemented from 2004, has already created an impact among workers eligible to benefit.

If the trend is confirmed there could be a “breath of fresh air” for the burdened INPS.

In October, the second official date for retirement applications, a further 15,000 workers are estimated to be eligible for retirement but could apply instead for the bonus and keep working.

The bonus will be offered to private employees until December 2007.

According to government figures, 39 billion euros will now be saved from Italy’s pension bill between 2008 and 2013 through the reform, around 0.7% of GDP annually.