On September 14, the Italian parliament approved pension changes as part of a EUR 54 billion (USD 73 billion) austerity plan designed to restore investor confidence in the country's creditworthiness. (Spending on public pensions for private-sector workers and public employees in Italy accounts for approximately 14 per cent of gross domestic product (GDP)-more than any other member country in the Organisation of Economic Co-operation and Development.) The plan reduces the country's considerable public debt (approaching 120 per cent of GDP)-one of the largest in the Eurozone. The Italian Treasury projects that the package of spending cuts and tax increases will cut the fiscal deficit from this year's 3.8 per cent of GDP to zero by 2014. Despite the austerity plan, Standard & Poor's rating agency lowered Italy's sovereign debt rating on September 20 from A+ to A and placed the country on negative outlook (implying chances of a further downgrade in the next 18 months), based on the country's worsening economic outlook and fragile coalition politics.

Pension-related measures contained in the austerity plan include-

- Postponing pay-outs from retirement funds for public-sector employees by up to 2 years, which is expected to reduce expenditures by 330 million euros (USD 446 million) in 2012 and by EUR 1.065 billion (USD 1.440 billion) in 2013;

- Accelerating the scheduled gradual increase in the retirement age for women in the private sector from 60 to 65 (matching the retirement age for men) from 2014 through 2026 (instead of from 2020 through 2032 as previously planned), which is projected to save roughly EUR 90 million (USD 122 million) annually after 2015.

Italy has a multi-pillar retirement system for private-sector workers. The first pillar includes two tiers: a means-tested social pension for those older than age 65 and a notional defined contribution program, a type of earnings-related pension system financed on a pay-as-you-go basis. The second pillar consists of supplementary occupational pension plans, while the third pillar comprises tax-advantaged voluntary, retirement savings plans managed by financial institutions. Public-sector employees have special retirement systems.

Source: "Italy-Current Pension System," European Social Observatory, May 2010; "Factbox-Italy PM Wins Confidence Vote on Austerity," Reuters News, September 14, 2011; "Italy's Austerity Measures-A Summary," italychronicles.com, September 19, 2011; "Italy's Rating Downgrade Could Speed Up Austerity: Germany," Agence France Presse, September 24, 2011.

Legislation date: 09.2011