Italian government offers watered-down pension reform

Italy's government offered a watered-down proposal to unions to overhaul the country's pension system yesterday, but said it would still meet its savings target to help whip public finances into shape.

Prime Minister Silvio Berlusconi's coalition unveiled a plan, which from 2008 would raise the retirement age by three years to 60, but would shy away from forcing people to pay into the system for longer than the current 35 years.

Yesterday's proposals, reached after months of bickering and tinkering, were much softer than deficit-busting plans trumpeted in October to make men work until they were 65 years old or had made 40 years of contributions.

And the government is hoping the dilution is enough to appease Italy's three influential unions - who staged a general strike last year over the first draft - while continuing to save 0.7 per cent of gross domestic product a year.

"In 2013, there will be a review and if we are saving money, then nothing will change. Otherwise, we'll bump the retirement age up to 62," Economy Minister Giulio Tremonti told a news conference.

Italy's heavily indebted pensions system currently swallows about 15 per cent of GDP and the proportion is only likely to grow as the country's birth rate falls and people live longer.

The government's reform plan has not pleased either industry bosses or labor chiefs - though for different reasons.

"It's not what we wanted, although it is a step in the right direction. We would have preferred something more rigorous from a social as well as a financial angle," said Antonio D'Amato, head of employers group Confindustria.