La dolce vita, but not for the pensionado

Published on: 26 November 2021

The second-best pension system in the world. That's what we have in the Netherlands, according to the annually published Mercer CFA Institute Global Pension Index, in which 43 countries are included. Are the other countries really performing that poorly? Every two weeks and during twenty weeks, we delve into the system of a specific country. Episode two: Italy.


Would there be a better place imaginable to spend your old age than in the country where la dolce vita was invented? Italians enjoy their pension on average for a long time: men 20.7 years and women 25.7 years. That partly has to do with a high life expectancy but is also due to the fact that Italians stop working at an average age of 64. Since 2019, the statutory pensionable age has been set to 67 for everyone. Previously, men were able to retire at the age of 65 and women, remarkably enough, already at the age of 60.


The sky is the limit

Until 1992, the sky was the limit in Italy. People were allowed early retirement after 35 years of work (civil servants already after 20 years and married female civil servants even after 15 years)  with continuing payment of the last-earned salary. Nowadays men must have paid contribution for 42 years and 10 months in order to claim early retirement, and women for 41 years and 10 months.


The same as in Germany, the Italians predominantly rely on pension from the first pillar for their old age. This first pillar consists of a basic old-age pension (‘vecchiaia’) and an allowance depending on people's employment record and contributions paid (‘anzianità). Recent adjustments have made the future benefits less solid. The risk of the actual allowance being lower has therefore increased. The share of the second pillar pension (accrual of pension through a pension fund related to the business sector or enterprise) in the total pension amount is very small in Italy (1 percent).


Aging of the population takes its toll

The pension expenditures put a big strain on the Italian government budget. Estimates of the Court of Audit show that a peak of 15.9 percent will be reached in 2022 of the gross domestic product. In the Netherlands, the state pensions (AOW) are slightly less than 5.4 percent of the gross domestic product (2020) and this number is expected to increase to a little over 6.5 percent in 2040. And as the largest part of the Italian pensions is funded based on turnarounds (the working population pays for the old age of the pensioners), the aging population in Italy takes a toll on the government budget in the years to come. This is due to the fact that an increasingly smaller working population has to provide for the pension of a growing group of pensioners.

In terms of ‘durability’ Italy has the lowest score in the Mercer Index of all (43) investigated countries. That's a very unattractive perspective for young people. Time will tell whether the pension pot is still sufficiently filled when it's time for them to retire.

The Italian pension system: Facts & Figures


Valuation in the Mercer CFA Institute Global Pension Index 2021: C-Grade (“A system with some good features, but also major risks and shortcomings. If these issues are not addressed, the question is whether the system will be tenable and adequate in the long term.”).


Design:               System with three pillars


Funding:            Largely financed based on turnarounds. For a very small part capital funded, involving Defined Contribution (DC) schemes enterprises take care of individually (in case of a DC scheme, the height of the pension payment is determined at the time of retirement, depending on the contributions paid and the investment return realized on those contributions).


Median pension: 80 percent of the average wage income. Median in this case means: half of the pensions is less than 80 percent of the average wage income and half of the pensions is more than 80% of the average wage income.


Median pension first pillar (2019):        13,194.35 euro

Average pension second pillar:              close to zero

Adequacy (Mercer ranking):                   16th       

Durability (Mercer ranking):                   43rd (last)

Integrity (Mercer ranking):                     22nd