ITALY – Italian economy minister Giulio Tremonti has said that the state pension system will explode unless the second pillar is not developed as soon as possible.

In an interview with the Corriere della Sera daily, Tremonti spoke of changing the state pension system before 2008 at two levels. One proposal is to increase the length of contributions to 40 years or to set the age of retirement at 65.

“This would mean that if you contribute for 40 years, then you can retire even if you are not 65 years old, or that you can retire at 65 even if you have not contributed for 40 years,” explained Tremonti. At the moment, most retire after 35 years of contributions or at 57 years of age.

The second stage, he says, would be an immediate reform of the second pillar, with incentives to encourage employees to work later. “The incentives would be a potentially positive experiment, and to work they must be simple and produce a big increase in salary.

The issue of incentives has been bandied about by various Italian pension industry experts for some time. It had originally been coupled with the idea of disincentives, but the latter was considered a potentially leading to negative results.

Already the unions have responded to Tremonti’s interview by arguing that 2008 is too far away and that changes must happen now.

Italian prime minister Silvio Berlusconi has promised that reform proposals will be announced in the coming weeks, and last night stated that “an unofficial agreement” has been made with the social partners.