Reforming the Italian Pension System in the Xxi Century: Tackling the Issue of Seniority Pensions Once Again

Alternative pension schemes, particularly related to provisions on early retirement, might produce different effects on retirement behaviours, with important economic consequences. This paper presents new evidence on the effect of different seniority pension reforms, considering for the Italian case the evolution of an agent-based economy, with heterogeneous workers, whose retirement age depends on expected lifetime incomes. Using dynamic ageing, we examine behavioural changes along proposed pension reform path. Our model — properly calibrated to replicate the main Italian demographic and economic features and retirement dynamics — is used to estimate, under different policies, the age of retirement, total pension expenditures, pension benefits and the trend of inequality and poverty among pensioners. In general, we find a tendency to postpone the exit from labour market. In this case, pension expenditures grow faster, because savings, due to retirement postponement, are compensated by higher benefits. Precisely, we compare the current state of affairs (B) with the reform proposed by the Italian Welfare Minister (M) and with an anticipated start of the mixed regime, limited to seniority pensions (A). Under the scenario M we get slightly higher savings and minor redistributional effects; M increases more income concentration, but it mitigates poverty problems after 2008.