The sustainability of pensions in Italy is at risk. Fewer newborns, fewer young taxpayer workers, an aging population, rising inflation and pension spending well above the average for the rest. And so the INPS (Civ) Steering and Supervisory Council has raised the alarm: the financial balance of the pension system is at risk.
In 2023, pension spending exceeded 300 billion euros (15.2% of GDP). Italy is at the top of the European ranking of countries that spend more on pensions compared to GDP, together with Greece. And the dependency among “young people” and those over sixty-four is increasingly increasing. In Europe on average it is 36%, in our country it is 41%. It means 4 young people for 1 elderly person. With the decline in birth rates and the increase in life expectancy (which the 2023 Census photographed just yesterday) the imbalance in the pension system is worrying.
Italy is at the top of the European ranking for pension expenditure in relation to GDP. In 2021, this reached 16.3%, second only to Greece (16.4%) and well above the European average (12.9%). 11% of European GDP is allocated to “old age”, but Italy excels with 16%. Although total spending on pensions in 2023 remained stable at 317 billion euros, equal to 15.2% of GDP, excluding welfare benefits and taxes it still reached 11.9%, a higher level than the pre- pandemic.
These data reflect two characteristics of the Italian social security system. On the one hand, the legal retirement age of 67 is among the highest in Europe (although thanks to early exit channels the effective age drops to 64.2 years) due to numerous early exit channels. On the other hand, the percentage of the last salary that turns into a pension is among the most generous on the continent (58.9%), exceeding the European average by 14 points.
The aging of the population is the main risk factor for the sustainability of pension systems. In 2023, the median age in Italy reached 48.4 years, the highest value in Europe where the average is 44.5. It means that half of Italians are under the age of 48.4 and the other half are over this figure. In Europe the “watershed” is 44.5. So we are “older” and this figure is aggravated by a fertility rate among the lowest in the Union (1.24 children per woman in 2022, compared to the European average of 1.46) and by a life expectancy among the higher (21.5 years to 65 years). The result is a rapid increase in the dependency ratio, or the ratio of people over 64 to those between 20 and 64. In 2022, the European average dependency rate was 36%, with maximum values in Italy (41.0%) and Portugal (41.2%) and minimum values in Ireland (25.8%). Eurostat estimates predict a slight increase in fertility and life expectancy by 2070, but the dependency rate will continue to grow, amplifying the challenges for social security systems.
In addition to aging, the “pension hump” is affecting the imbalance and therefore the alarm. The exit of the largest baby boomer generation from the workforce will cause a spike in pension spending, bringing it to 17% of GDP. Finally, there is the impact of inflation, which in the last two years has inflated spending due to the adjustments of benefits to the cost of living.
In the report “The nature of INPS income and expenditure” the Civ warns that the central problem concerns social sustainability. If the relationship between pensioners and taxpayers continues to worsen, future generations may find themselves facing a system incapable of guaranteeing adequate social support.
