Employer Action Code: Monitor
In December 2011, a major pension reform was enacted, introducing emergency austerity measures that have modified the Italian state pension system in several ways.
The major change in the pension system is a delayed retirement age: Effective January 1, 2012, the new retirement age has been set at 66 for male employees; for female employees, the retirement age will gradually increase to age 66 by 2018. The reform does not apply to employees who have met the pension eligibility requirements by December 31, 2011. The retirement age will rise according to actual increases in life expectancy published by the National Institute of Statistics. Starting in 2021, no workers will be able to retire before age 67.
The state pension benefit individuals receive is calculated according to how long they have been making contributions. There are three calculation schedules:
- Earnings-related system (retributivo): This calculation applies to those who, by December 31, 1995, had contributed for at least 18 years; the annuity is calculated as a percentage of salary through December 31, 2011, with a defined contribution arrangement for service from January 1, 2012.
- Pro rata system (misto): This applies to those with less than 18 years of contributions by December 31, 1995; the annuity is calculated using the earnings-related system until December 31, 1995, and the contribution-based method for all service after January 1, 1996.
- Contribution-based system (contributivo): This applies to all employees hired for the first time after January 1, 1996; pensions are calculated solely on the basis of contributions made during their working lives, up to a ceiling of (currently) €96,149 (US$119,099).
New minimum contribution qualifications for early retirement are:
- Men: 42 years and one month in 2012, increasing to 42 years and six months beginning in 2014
- Women: 41 years and one month in 2012, increasing to 41 years and six months beginning in 2014
If the employee draws an early retirement pension before the age of 60, a reduction of 2% of the total pension benefit will be applied for each year before age 60 is reached, while a reduction of 1% will be applied for each year between the ages of 60 and 62.
Implications for Employers
- The overall increase in retirement age will result in an increase in the length of employees' service, which will cost employers more for the most common defined benefit arrangements (e.g., long-service award, Trattamento di fine rapporto and other severance payment plans).
- The value of the pension will be lower than under the previous system, making top-up/supplementary pension plans more important.