Italy Budget Spurs Pension Tensions

After long teaching careers, Aldemira Pettinari and her husband imagined an active life as tourists in their own city, exploring ancient Roman ruins and modern galleries they never had time for.

He retired four years ago, at 60, with a school band concert, a medal and a pension nearly matching his $1,700 monthly salary. Last month, Pettinari, 59, was eligible for a ceremony and a pension of her own.

Instead, a few weeks before school let out, she and thousands of other teachers received notice that their “retirement privilege” was suspended and they must return to class in the fall.

“Privilege?” she asked bitterly during a break in exams at Rome’s Ennio Quirino Visconti High School, studying the decree through bifocals tied around her neck. “What happened to my rights?”

These are frustrating times for some Italians who had counted on early retirement.

Determined to qualify for European monetary union, the government is trimming Europe’s costliest pension system by obliging people like Pettinari, who has taught physics for 34 years, to work longer and contribute more toward their own nest eggs.

Just how much longer and how much more are to be decided in summer-long bargaining between Prime Minister Romano Prodi’s center-left coalition and unions resisting a change in pension requirements, which have already been modified twice since 1992.

Any move against pensions in Italy is a political risk--especially now. While no other country in Europe has registered such high popular support in polls for the proposed currency club, no other has endured the level of combined tax hikes and spending cuts Prodi has imposed--$60 billion in one year--to try to meet its entry requirements. After watching Prodi halve the budget deficit to within range of the European standard--3% of gross domestic product--Italians are telling pollsters, as rebellious French voters recently told their leaders, that new sacrifices before the common currency’s planned 1999 debut would be unjust.

But the government is pushing ahead, saying the pension system is in danger of collapse and eating up money better spent on the unemployed, a group neglected more in Italy than elsewhere on the Continent.

“We have to show ourselves and the rest of Europe that we’re serious about reform,” Labor Minister Tiziano Treu said in an interview. “It’s a matter of telling people they should wait longer to retire--we don’t know how long yet--and if they accept this, they can be sure that the system won’t go bankrupt for the next generation.

“Of course, this is not a very persuasive argument for the unions, because their clients are not the next generation,” he added. “They’re defending privileges.”

Many Italians bristle at the assertion, especially from a government dominated by former Communists, that pensions are a pliable “privilege.” But the pension rights codified in Italy’s postwar welfare state have proved too expensive and too abused to go unchecked.

“Baby pensions,” which some public employees collected upon retirement after working for as few as 15 1/2 years, were abolished in a 1992 reform. But each year the treasury still spends $190 billion--42% of the national budget--more on pensions than it receives in pension contributions from workers.

If that were not enough, auditors disclosed this month that the state has been paying disability benefits to 30,000 dead people--whose relatives were cashing the checks--and to thousands of able-bodied Italians, all at an estimated cost of $410 million a year.

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Italians are burdened by demographic shifts that have given them one of the lowest birthrates and longest life expectancies in the world. About 21 million Italians collect pensions, almost a million more than the number who work. It is not uncommon for people to collect a pension far longer than they held a job.

A 1995 reform, after drawn-out negotiations between unions and the previous government, set a flexible retirement age, from 57 to 65 depending on years worked and contributions paid. The reform will make the pension system pay for itself by bringing contributions and benefits into line by 2013.

That’s not soon enough for Prodi, who needs to qualify now for the proposed monetary union and then meet stiffer economic competition across Europe’s vanishing borders.

His current proposal would put Italians who began working before 1977 under the same obligation as younger ones to foot the bill for their own retirement. This, in effect, would oblige those closest to retiring to work a few years longer.

“It’s a question of adjusting personal expectations,” said Paolo Onofri, an economics professor who advises Prodi on pensions. “If we can manage this adjustment, we can expand unemployment payments and make the labor force mobile enough to face international competition.”

Noting that few of Italy’s 2.7 million unemployed are eligible for jobless benefits, he added: “We’ll have to lay off even more people, shut down old industries, open new ones” to compete.

Pettinari, the physics teacher not allowed to retire, accepts only part of the government’s argument.

“I understand that when a person retires too young, the income that he gets for the rest of his life is more than he contributed,” she said. “But at my age, one starts to feel a little tired. I’ve done my job. The longer they keep me around, the longer I deny a job opportunity to someone younger.”

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The unions are resisting Prodi’s reform proposal on the ground that the 1995 reform law rules out amendments before 1998.

Sergio Cofferati, leader of Italy’s largest trade union confederation, questions what he calls Prodi’s “obsession” with cutting pension costs, arguing that more could be saved by tracking down tax evaders.

But the unions agree on the need for some pension reform. A compromise is so widely expected that 90,000 of Italy’s 3 million public employees have sought early retirement this year--before the rules change again.

The biggest uproar came when the government took the provocative step of telling many of them: Not yet.

One in every 13 teachers joined the rush to retire, throwing the public schools into a crisis. To assure that all schools open next fall, the government ordered 32,683 teachers--half of those wanting out--to continue working at least two more years.

“A lot of them were waiting to retire so they could get part of their pension in a lump sum,” sociologist Franco Ferrarotti said. “They had commitments--a house to pay for, a sick parent to take care of. Now they’ve lost all faith in government. They’re scared of losing everything.

“Italians favor getting into Europe, but nobody knows what it’s really going to cost,” he added. “They live in this uncertainty, under this big black cloud, so they rush to grab what they’re entitled to because they’re afraid it might melt away.”

Treu, the labor minister, insisted that the government is trying only to delay--not reduce--pensions. But he admitted that it has been too cautious in confronting the unions and not clear enough in explaining its aims to the public.

Still, the near-constant reform of prior reforms is sending a clear message to Italians that the old order is shutting down and that the last ones out could be stuck with the bill.

“Public employees were once the pillar of support for government after government,” said Adriano Diciacomo, a 49-year-old art teacher at a public school on the edge of Rome. “The state was one huge system of patronage. Now Italy is being ruled by the logic of finance. We’re getting a bad image for those years of waste and fraud with the pensions. Honest people are having to pay for all that.”

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Italian Labor Force

* Population: 56,746,000

* Employed: 20,088,000

* Pensioners: 20,971,000

* Unemployed: 2,763,900

* Retirement age: 57 to 65, depending on years worked

* Full pension: 80% of average salary over last five years worked, but tax benefits after retirement make full pension roughly equal to maximum salary.

* Life expectancy: 75 for men, 82 for women

* Birth rate: 10 per 1,000

Source: National Statistics Institute of Italy, 1996

Welfare Spending in Europe

As percentage of gross national product

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Germany France Italy Briain EU average Retirement 12.1 12.7 15.4 10.8 11.9 pensions Disability 3.5 2.2 2.2 3.1 2.4 pensions Unemployment 2.0 2.0 0.5 1.6 1.9 pensions Total welfare 30.3 30.9 25.8 27.3 28.5 spending

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Note: Total includes other categories

Source: La Stampa newspaper, Turin, Italy, 1996