Italian Pensions from “Vices” to Challenges: Assessing Actuarial Multi-pillarization Twenty Years on

The development trajectory of the Italian pension system is prototypical of most Continental and South European countries: from Bismarckian origins to a fully-fledged single-pillar pension system after the Golden Age, up until the late transition to a still very incomplete multi-pillar architecture during the last two decades (Jessoula 2009, 2012). An early start was made with the introduction of compulsory public insurance against the risks of old age and disability for civil servants/public-sector employees (1864) and private-sector blue-collar workers (1919). In the 1950s and 1960s, pension expansion followed three main trajectories: (i) subsequent extension of compulsory insurance in order to include all professional categories – full coverage of the employed population was reached by the mid-1960s; (ii) a shift to an earnings-related system for private sector employees (1968) and the self-employed (1990); (iii) the introduction of both the minimum pension supplement (1952) and the social (assistance) pension (1969) to combine the traditional goal of income maintenance with the prevention of poverty. While this trajectory was similar to that of other Bismarckian countries in Europe, the process in Italy took on peculiar traits. The expansionary reforms actually contributed to building a fully-fledged single-pillar pension system which presented remarkable regulatory differences between the various occupational categories, allowed to retire earlier than in most European countries (especially owing to seniority pensions allowing retirement before pensionable age), and provided comparatively generous benefits – the earnings-related formula guaranteed replacement rates of around 75 per cent after 40 years of insurance. Supplementary pensions were de facto crowded out by high public pension replacement rates coupled with the existence of a mandatory severance payment for both public and private employees (Trattamento di fine rapporto – Tfr). Thus, until the mid-1990s, private pensions were virtually unknown and there was no such thing as “pension mix” in Italy (Jessoula, 2011a). As for the triggers of such remarkable expansion of pensions during the Trente Glorieuses, it was the result of very peculiar competitive dynamics in the Italian “First Republic”, which was actually characterized by an ideologically polarized and fragmented party system (“polarized pluralism”, cf. Sartori, 1966) and a “blocked” democracy (i.e. democracy with no alternation in power). In this framework, weak and unstable Italian cabinets had incentives to respond to the (often micro-) corporatist pressures arising from interest groups, by multiplying particularistic regulations and distributing advantages and benefits to those social categories whose electoral support was particularly important, not only for government survival but also for the full consolidation and stabilization of the democratic regime (Ferrera et al., 2012). The occupational character of the pensions system provided fertile ground for such political exchanges in a context where, on the one hand, competition was harsh among the parties forming governmental majorities – the Christian Democrats (Dc) and its three/four allies – and leftist parties, in primis the Communist Party (Pci); on the other, a parallel competition unfolded between the main trade unions – Cgil, Cisl, Uil – characterized by different ideological orientations and political strategies. By exploiting different “channels” of influence, labour organizations have thus traditionally had a crucial voice in pension policymaking, often representing the main triggers of expansionary policies. While three decades of continuous pension expansion were key to substantially reducing poverty in old age – which still represented a severe malaise in the 1950s–60s – expansion caused the rapid increase in pension expenditure relative to GDP – which rose from 4.5 per cent in 1960 to 10.8 per cent in 1980 (Ministero del Tesoro, 1981) – and de facto brought the pension system to the verge of bankruptcy when the favourable (economic and demographic) conditions of the Golden Age swiftly faded away. Initial responses from weak Italian cabinets aimed at maintaining existing pension promises by increasing revenues, either raising contribution rates (from around 9% in the 1950s to 33% in 1995) or augmenting transfer from the state budget to fix the huge imbalances which appeared in the accounts of the National Social Insurance Institute (INPS) and other independent funds. By contrast, since the introduction of the EU’s fiscal constraints with the Maastricht Treaty, and the domestic transition to the so-called “Second Republic” in 1992, the Italian pension policy made a U-turn from expansion to retrenchment. Two decades later, Italy is actually among the European countries which have proceeded the furthest in reforming old-age protection arrangements by addressing the “vices” (cf. Levy, 1999) of the system. In particular, Italy has undergone three waves of reforms since the 1990s. In the first wave (1992–7), the overall pension architecture was redesigned via both parametric and structural reforms. The second wave (2001–7) brought about fine-tuning measures and also contradictory interventions, mostly concerning eligibility conditions for old-age and seniority pensions; furthermore, provisions were enacted with the aim of extending supplementary pension coverage. Though important, most measures adopted in the first two waves were implemented gradually owing to long phasing-in periods and exemptions from the new rules (Ferrera and Jessoula, 2007; Natali, 2007). Importantly, in this respect, the NDC method introduced in 1995 was fully applied to new entrants in the labour market only, while older workers (with at least 18 years of seniority) were fully exempted. Against such a backdrop, the reforms adopted since the outbreak of the (2008) financial-economic shock and the subsequent sovereign debt crisis – the third wave, 2009–11 – represented a critical watershed. In fact, differently from the past, they all aimed at reducing expenditure in the short to medium term, thus substantially affecting unions’ interests as well as those of their core constituency – that is, older workers – which had been effectively protected from retrenchment in the previous two decades. Although measures adopted in the third wave are mostly parametric, we will argue that they are likely to produce major effects along three key dimensions, economic-financial sustainability, social sustainability and benefit adequacy, and system design, with particular reference to the interplay between the first public pillar and the (still developing) funded pillars (see also Jessoula and Raitano, 2015). We will discuss these issues as follows. In the next section we present in more detail the architecture of the Italian pension system before the Great Recession and the main reforms adopted during the “crisis”. The third section addresses the main pension challenges after the latest wave of reform by focusing on the three analytical dimensions mentioned above. The fourth section analyses both pension politics and governance after two decades of reforms, with a special focus on the challenges for the trade unions and their constituencies in the novel pension arenas. The fifth section concludes.