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Italian reform reduces redistribution – study

ITALY – A new academic study of the Italian pension reform of the 1990s – which saw a switch into a notional defined contribution system – says the changes reduced both the perverse and good redistribution of the past.

“By ensuring uniformity of treatment among different categories of workers, the new system thus dramatically reduces both the perverse and the ‘good’ redistribution of the past,” the 25-page study says.

It adds: “The first effect is certainly positive; the second follows from the aim to separate the insurance from the assistance goal of the pension system, in order to improve its transparency.”

But Margherita Borella and Flavia Coda Moscarola, in a working paper for the Center for Research on Pensions and Welfare Policies, CERP, say the adequacy of benefits following the reform is “still an open question”. This will depend on the characteristics of the labour market.

“From this perspective, it is possible that our results underestimate the dimension of the problem, if future working careers will be more flexible and discontinuous with respect to the past.”

The Italian pension system underwent major reform in the 1990s moving from defined benefit to defined contribution, while maintaining pay-as-you-go financing.

Borella and Coda Moscarola say the old system was “perverse” in that it distributed from the poor to the rich. “The new notional DC system, which does not have a direct redistributive aim, will certainly reduce the iniquities of the previous system,” they write.

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