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Pension’s unfairness: is the Italian pensions system leading to repel young talents in the long-run?

Pensions system is an arduous arguments the public sector faces, since it impacts the well-being of a Country. There is a wide literature in economics on generational accounting, which measures directly net taxes that current and future generations are expected to pay under existing public policy. Notwithstanding, there is no clear consensus among scholars about how the pension structure should look like. Each Country has its own characteristics to tackle and the pension providers face the risk that retirees might live longer than expected (ftp://ftp.igier.unibocconi.it/wp/2012/439.pdf).

Here the attention will be focused on the Italian pension system and its latest reforms. Italy is characterized by one of the largest public debt, a traditionally very generous pension system and one the lowest fertility rate worldwide (http://www.nber.org/chapters/c6695.pdf). The latter, together with the current high percentage of unemployment among young people in Italy, will likely lead to shrink even more the financing for the Italian public intakes addressed to pensions.

The Italian pensions provider is the 100%-publicly owned entity INPS. Accounting for more than 30% of annual public expenditure and nearly 15% of Italian GDP, (http://www.ilsole24ore.com/st/nlprofessionisti/120109/gap/Guida-alle-pensioni-01_2012.pdf), INPS income adds up to negative values since 2012.
The main cause is its addressees imbalance, which in turn is explained by the former Italian pensions system. It regards equality, much more important issue, rather than financial performance (e.g. bad management, corruption, etc.). In 2012, in order to solve this imbalance, the Italian Government changed the retirement distributive structure: it passed from the remunerative method, based on the average of the last 10 years of salary, to the much more fair and unbiased contributory method, which is instead based on the contributions an employee made during his working life. But this was not enough, because the new method is introduced only from new retirees on. The former method de facto caused a great percentage of pensioners (mainly ex-politicians) earning in retirement more than how much they deposited during their working activity. To get an idea of the imbalance, the ratio between retirement benefits to all deposits paid during the entire working life accounts even to seven. This inefficiency will likely lead to a huge problem: scarce resources to feed the future generations’ pensions.

One interesting solution proposed recently by the INPS President T.Boeri is to redistribute retirement benefits from whom is actually receiving rich pensions to whom is receiving less. However, a problem of conflict of interests can probably arise and willingness-to-redistribute must be considered. Besides T.Boeri’s proposal, which in my opinion should be fine-tuned, another solution might be providing incentives to the young generation towards public finance, eventually by favouring its entrance in the job market (e.g. enhancing education).

In conclusion, something more has to be done by the Government in order to discourage and not let young Italian talents escaping abroad. Whichever kind of investments the Government chooses to promote however, will produce effects that are visible only in the long-run.

Francesco Mazzola

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Author: studentnovasbe

Master student in Nova Sbe

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