Italy weighs freezing its retirement age at 67

Rome: Prime Minister Giorgia Meloni’s government is considering a freeze in Italy’s retirement age of 67, in a move critics warn would put renewed pressure on the country’s improving but still fragile public finances.

Italy’s existing pension law links the statutory retirement age to life expectancy improvements, mandating a review every two years — and automatic upward revisions if warranted.

But Italian labour unions are demanding a halt to the automatic increases, and an overhaul of the pension law, which was adopted during the Eurozone sovereign debt crisis when Rome sought to restore market confidence.

Their demand comes as the French and German governments are encouraging their own citizens to work longer amid concerns about the viability of pension systems as their populations age. While Italy’s statutory retirement age is higher than others, its population decline is one of Europe’s fastest.

The far-right League party, which is part of Meloni’s ruling coalition, has long criticised the pension law’s provision for automatic increases, and is backing a freeze.

“If you have the retirement age at 67, it’s a huge problem,” said League senator Claudio Durigon, a former factory worker and union leader, now the under-secretary of labour.

Durigon said that some older workers had died while operating heavy machinery, and that linking the retirement age to life expectancy was “a beastly policy towards the working man”.

The pensionable age last rose in 2019, before the Covid-19 pandemic — when it jumped five months to 67 years. From January 1 2027, it is due to rise by three months.

Finance minister Giancarlo Giorgetti said earlier this year that he was amenable to a two-year freeze, which would pause the automatic adjustment to the retirement age until 2029. The finance ministry told the Financial Times the idea was still “under discussion” and any decision would take into account “the overall economic picture”.

Italy’s independent parliamentary budget office estimated that if the retirement age was frozen — and the automatic adjustment mechanism deactivated, pension costs would rise by 0.4 per cent of GDP between now and 2040.

It also said Italy’s debt-to-GDP ratio would rise to 139 per cent by 2031, seven percentage points higher than current forecasts for that date.

Economists say any such step would send a dangerous signal to investors who are already jittery about French debt, given strong opposition in that country to reform of its own retirement age.

“Italy’s pension reform — the automatic linkage between the statutory retirement age and life expectancy — is the anchor of its [Italy’s] fiscal sustainability,” said Filippo Taddei, senior European economist at Goldman Sachs.

“If people live longer, the retirement age moves up and that keeps the fiscal system automatically in balance,” Taddei said. “It gets around a very tight political constraint since changing the retirement age is a super toxic political problem across Europe.”

Meloni’s government has gained recognition from investors for its fiscal discipline since taking office in late 2022, helping to push the spread between Italian and German 10-year bond yields below 0.8 percentage points last month for the first time since before the Eurozone debt crisis.

At about 3.6 per cent, Italy’s borrowing costs are trading broadly in line with France’s — a reversal for an economy previously viewed as a byword for fiscal profligacy.

Rating agency Fitch upgraded Italy’s sovereign debt rating by a notch to triple B plus last week, citing “increased confidence in Italy’s fiscal trajectory underpinned by a growing record of fiscal prudence”.

But Tito Boeri, former president of Italy’s National Institute of Social Security — which runs the pension system — warned that severing the link between pension age and life expectancy would weigh heavily on Italy’s debt trajectory.

“This mechanism is very precious and should not be altered . . . [otherwise] the consequences for Italian public debt are going to be quite dramatic,” said Boeri, now an economics professor at Bocconi University.

Elsa Maria Fornero, the primary architect of the pension reform, said it could be politically “difficult” for Rome to raise the retirement age again.

“From both a political and financial point of view, I would suggest prudence,” said Fornero, who now teaches at the University of Turin.

Despite the relatively high retirement age, just 46 per cent of Italians aged between 50 and 74 actually work — one of the lowest levels in Europe, due to past low retirement ages and early retirement schemes.

With Italy’s next national elections looming in 2027, analysts are concerned that Meloni’s government may be tempted to adopt populist measures it previously avoided.

“I fear that getting closer to the election date,” Boeri said, “they will give up the only good thing that was done in all these years, which was to be prudent, and not do silly things.”