Home Business Pensions: OECD, in Italy now at 61.8, in the future at 71 with record spending

Pensions: OECD, in Italy now at 61.8, in the future at 71 with record spending

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In Italy, those who retire now have an average of less than 62 years, those who start working now will have to wait nine more abundant years to reach the finish line. It is a trajectory that will see the Peninsula pass from one extreme to the other of the international rankings on the subject, that is, from now having pensioners among the youngest in the OECD area to the oldest in the space of a few decades. With the heavy burden of a record cost of pensions both in relation to GDP and in terms of social security contributions.

The scenario is traced by the OECD “Pensions at a Glance” report which reviews the pension systems of the 38 countries that adhere to the Parisian organization and some G20 countries. faster than the population, more pronounced in Italy than elsewhere and the various laws of recent years which, such as “Quota 100”, have “circumvented” the age limits set by the Fornero reform.

“The Italian pension system would benefit from better transparency in the calculation of contribution-based benefits and from greater monitoring and management of long-term solvency”, warn OECD experts, who consider, among other things, an increase in employment to be essential. in the older age of the population.

In the Peninsula – the ratio indicates – the effective retirement age in 2020 was 61.8 years against the OECD average of 63.1 years (and the 67.5 years of Japan and New Zealand), therefore a lower figure even at the 62 years foreseen by Quota 100, that is five years before the legal retirement age. For a 22-year-old who starts working this year, the pension will instead reach 71 years, due to the adjustment of the retirement age to the life expectancy provided for by the legislation and will be the highest age in the OECD after that of Denmark (74 years) and like that of Estonia, above the OECD average, estimated at 66 years.

The study highlights, on the other hand, that “in the last two years in Italy, early retirement options have been extended which have circumvented the connection between life expectancy and retirement” and, as in the case of the Female Option and the measures for companies in crisis, have lowered the effective age of leaving work. Referring to “Quota 100” and the 38 years of minimum contributions it requires (compared to 42.8 for men and 41.8 for women previously requested), the report notes that only Spain, in addition to Italy, allows you to have a full pension before the legal age with less than 40 years of contributions. France requires at least 41.5, Belgium 42 and Germany 45.

Italy’s 62-year “normal retirement age” is also the lowest in the OECD, together with Colombia, Costa Rica, Greece, Korea, Luxembourg and Slovenia, with the exception of 52-year-old retirees in Turkey and against the 67 years foreseen, at the opposite end of the ranking, from Iceland and Norway. Perhaps the mirage is the 47 years foreseen by Saudi Arabia (extra-OECD), but also for the “oil lords” the retirement age is destined to increase and by a lot.

Returning to the Peninsula, thanks to a relatively low age of exit from work and a long average life, pensioners enjoy their retirement for 22 years for men and 26 years for women (OECD averages 19.5 and 23, 8 years respectively). Women on average retire at 61.3 years versus 62.3 for men, but receive a 32% lower allowance, with a wider “gender gap” than the OECD average, which is 25%. According to the study, however, on average the over-66s in Italy have the same average income level as the population (2018 data), an increase compared to 2000 (it was 85% of the average income) and therefore are better than the OECD average. , which sees the incomes of the elderly 12% lower than the national average incomes.

Better than the boarders of the Peninsula are only those of Luxembourg, Israel and Costa Rica, all with above-average incomes. On the other hand, Korea’s over-65s are faring really badly, with incomes equal to only 66% of the country’s average income. With the increase in the incomes of the elderly, their poverty rate in Italy has also decreased (-5.6 points compared to 2000), which is currently lower than the OECD average (11% against 13%).

Of course, in Denmark the poverty rate of over 65s is 3%, but in Korea it exceeds 43%. The other side of the coin, well known, is the cost to the public purse. “Guaranteeing relatively high benefits to relatively young retirees contributes to the second largest public pension expenditure, behind Greece, of the entire OECD, equal to 15.4% of GDP in 2019 and up by 2.2 points since 2000”, he comments the OECD. If we then add private spending (1.2% of GDP) the total rises to 16.8% of GDP, the highest level in the entire area against an average expenditure of 9.2%.

Spending on pensions was 32.1% of total public spending in 2017 (only Greece spends more), compared to an OECD average of 18.2%. Furthermore, projections see the cost of pensions in Italy reaching 17.9% of GDP in 2035, against an OECD average of 10%.

The aging of the population in Italy will be rapid, the study recalls: in 2050 for every 100 people between 20 and 64 there will be 74 over-65s, one of the highest ratios in the entire OECD (only Japan and Korea will do worse), against 39.5 elderly people per 100 people of working age today and, going backwards, 24.3 in 1990 and 16.4 in 1960. The average age of Italians, which in 1990 was 37 years , in 2050 it will be 53 and a half years, compared to 46.8 years for the OECD average and, for example, 34 years for Israel. Once again only Japanese and Koreans will be older. The working-age population between 2020 and 2060 will decrease by 31% in Italy against the OECD average -10% and for this reason “continuing to increase employment in older ages remains crucial for Italy”, recommends the OECD.

The employment rate of 55-64 year-olds has already increased by almost 27% between 2000 and 2020 against the OECD average + 18% and by over 7% among 65-69 year-olds. This also helped to contain the increase in pension expenditure, but in 2020 the employment of 60-64 year-olds in Italy was only 41% against the OECD average 51% and Iceland’s 75%, over 70%. of New Zealand and Japan or, to stay in Europe, 62% of Germany. Looking ahead, the high retirement age foreseen for the adjustment of the average life, combined with the contribution rate equal to 33% of the average gross salary – the highest level of the entire OECD, which has an average of 18.2% – will allow also in the future a high replacement rate, equal to 88% of earned income against the OECD average of 62%, but only in the case of an uninterrupted career up to the age of 71. If he were to leave work three years earlier, the replacement rate would drop to 72%, while remaining high in international comparison. In the case of five years of unemployment, the pension loss would be 8% against the OECD average 6%.

Finally, a self-employed worker – a very numerous category in Italy – can expect a pension 30% lower than that of an employee of the same level of taxable income, due to the lower contributions paid, while on average in the OECD the reduction is 25%. . “Between Covid-19 and the aging of the population, pension systems are at a crucial turning point,” writes Stefano Scarpetta, director of the OECD Division for Employment and Labor, in the editorial of the report. “As countries move away from managing the Covid-19 crisis, governments should address the main structural challenges of pension systems as part of recovery plans,” is the recommendation. And the main challenge remains that of aging.

The study points out that “automatic adjustment mechanisms”, such as the link between life expectancy and retirement age, “protect pensions from uncertainty and are less erratic, more transparent and more equitable between generations than discretionary variations.” They are increasingly used to maintain financial sustainability and should be supported over time at the political level.

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