FRANCE The

Trends
3. The policy framework
The Italian old age pension system is compulsory and public. Before
1996 it was based on the pay-as-you-go criterion, but the “Dini
reform” of 1995 provides pensions based on the contribution
principle, entirely for those employed after 1 January 1996, or in
part, according to the number of years of contribution to the system
ruling before 1996.
In the old system, the retirement age was set at 60 years for females
and 65 for males, but retirement was allowed also to those above 54
years of age and 35 years of contributions, and to those with 37
years of working life, independent of age. In the new regime the
retirement age is flexible between 57 and 65 years of age, both for
males and females, but retirement is also allowed after 40 years of
contributions, independent of age.
In the old system, the pension benefit (which reaches its limit after
40 years of contribution) is calculated by multiplying the average
wage/salary over a period depending on the years of contribution
(last 10 years for those who had paid contributions for more than 18
years on 31 December 1995 and the entire working life for the
others) by the years of work and by a coefficient determined as
follows. (1) In the private sector, for the working life before 31
December 1992: 2% for the yearly incomes below 33,714 euro; 1.5%
for the income bracket 33,714 – 44,840 euro; 1.25% for that of
44,840 – 55,966 euro; 1% above the latter limit. (2) In the private
sector, for the working life after 31 December 1992, the coefficients
are: 1.6% for the second income bracket; 1.35% for the third; 1.1%
for the income bracket 55,966 – 64,057 euro; 0.9% above the latter
limit. (3) In the public sector it is equal to 2%. The pension benefit is
indexed to consumer prices but not to wages/salaries.
In the new system, which applies to those employed for the first time
after 1 January 1996, the pension benefit is calculated by multiplying
a coefficient (e) by an amount obtained by capitalising 33% of the
wages/salaries obtained during the working life, annually adjusted
for the average rate of growth of nominal GDP in the previous five
years. The coefficient e reflects the life expectancy at the time of
retirement and it increases with the actual retirement age. For
example, for a worker retiring at the age of 57 the coefficient is today
equal to 4.72%, but it increases to 6.12% for those retiring at 65. The
substitution rate (pension over the last wage/salary) in the new
regime is thus inversely related to the difference between the rate of
growth of the worker’s wage/salary and the rate of growth of GDP
(whose long-term value is set at 1.5%). For example, for a rate of
growth of GDP equal to 2%, the substitution rate of a worker who
will pay contributions for 40 years and will retire at 65 is equal to
67.4% if the rate of growth of his wage/salary is one percentage
point above that of GDP; the rate falls to 57% if the former rate of
growth is more than two percentage points above that of GDP. The
pension benefit is indexed to consumer prices but not to
wages/salaries.
For all the workers who contributed for less than 18 years to the
previous regime, the contribution system is applied pro-rata (mixed
system), whereas for those who had more than 18 years of
contributions at the time of the reform the pension benefit is entirely
calculated on the basis of the old rules.
Recent attempts to build a second “pillar” of the pension system,
based on capitalisation of contributions and (open and closed)
pension funds has not yet been able to seriously take off. This
integrative scheme should not be funded through the contributions
sustaining the first pillar, but should draw on the TFR (funds
belonging to the worker but retained and accumulated by the
employer).
In the private sector, the contribution rate of workers is equal to
8.89% (plus 1% for the part of earnings exceeding 33,714 euro) and
that of employers is 23.81%, 5 for a total of 32.7% (and for maximum
yearly earnings equal to 73,332 euro for those employed after 1996,
who belong to the capitalisation regime). The State provides
transfers for assistance measures and for support to pension
schemes. In the public sector, the contribution rate of workers is
8.55% and that of the employer is 23.8% in the case of local
authorities and 24.2% in the case of the state. The State provides
transfers sufficient to cover the total pension expenditure.
According to the “Nucleo di valutazione della spesa pensionistica”
(the department of the Treasury in charge of monitoring social
expenditure), in 2001 pension expenditure, which amounted to
13.5% of GDP (the same value as in 2000 and 0.4 percentage points
below that of 1999), was mostly financed by contributions. After
remaining above 10% of GDP since 1996, in 2001 contributions
amounted to 10.5% (as compared to the value of 10.3% recorded in
2000, 10.5 in 1999, 10.2 in 1998 and in 1997). The GIAS (the
department of the national institute for social protection, INPS, in
charge of the management of assistance measure) financed
expenditure for an amount equal to 2.2% of GDP (which has been
fairly stable since 1998, when the borders between pensions and
assistance measures were redefined by law). The deficit, which is
mostly due to the state financing of the pension fund of state
employees, was thus equal to 0.8% of GDP, as compared to the
value of 1% recorded in 2000, 1.1 in 1999, 1.3 in 1998, 1.8 in 1997.
The Stockholm European Council set the target of increasing the
Union employment rate among the 55-64 up to 50% and the
Barcelona Council proposed, according to the timing up to 2010 set
for the employment rates, to increase the retirement age by five
years. In line with these goals, the NAP 2002 sets, for the first time, a
“plausible although ambitious” quantitative target: increase the
employment rate among the 55-64 to 40% by 2005, from 28% in
2001. 6
This target requires, of course, the activation of wide-ranging
policies, although the gradual phasing in of the pension reforms and
further measure in the Government agenda (in particular, the
increases in minimum retirement age), to be discussed below, should
strengthen the recent positive trends in old age employment rates
(see Table 9), improving also those for males.
Some steps towards the achievement of such targets are contained
in the Budget Law (Legge Finanziaria) 2002, which passed in
Parliament on 23 December 2002. The prohibition to cumulate
pensions and income from work was abolished for those who retire
at minimum 58 years of age and with 37 years of contribution. The
same applies to those already retired on 1 December 2002, even
though these individuals will have to pay a certain amount
depending on their age and contribution history at the time of
retirement. A ratification (“sanatoria”) is available for the
pensioners who illegally worked in the black market.
The general lines of action which the Government wishes to pursue
5 Employers pay contributions also for illness and motherhood (3.09% for blue-collar and 0.87% for white-collar workers); unemployment (4.71% for both types of
workers) and family support (2.48% for both types of workers).
6 It is worth reminding that the targets set for the total employment rate and the female one are set, respectively, at 58.5% (an increase of 3.6 percentage points) and
46.0% (an increase of 4.7 percentage points).
120 Spring 2003 | European Employment Observatory Review