Italian pension reform passed in confidence vote

Prime Minister Silvio Berlusconi's government won a confidence vote yesterday pushing through a crucial pension reform law that will give him a respite from coalition in-fighting which has paralysed his government.

Italy's lower house voted 333 in favour, 148 against with one abstention in a confidence motion that allowed Mr Berlusconi to galvanise parliamentary support from his fractious allies - a tactic often used to pass contentious bills.

The law will raise the retirement age and gradually switch Italy's pensions from a salary-related scheme to one based purely on pensions contributions.

Economists say Italy could eventually go bust if it does not change the current system which already costs the Treasury some 15 per cent of gross domestic product and will increase as the population gets older.

Unions, which have brought Italy to a standstill several times with one-day strikes on the issue, said they would contest the new law.

"The government should be under no illusions - the pensions battle is not over," said Morena Piccinini of Italy's biggest union CGIL, vowing that workers and pensioners would fight to overturn the law that "destroys their rights".

Although the government won the confidence motion, the bill still needs a final vote for it to be written into the statute books. The vote, widely expected to pass, is expected early today after opposition lawmakers get a chance to vent their fury on the parliament floor.

The victory is particularly sweet for Mr Berlusconi as his first government fell over the pensions issue in 1994 after only seven months in power. Successive governments have agonised for years over how to reform the system.

Finally achieving a pensions reform, albeit one many economists say is too timid, gives the premier a retort to those who have criticised his stewardship of the euro zone's third biggest economy, characterised by low growth and huge debt.

It also shows he still has command, at least for now, of the four-party coalition, despite rebellious rumblings.

Mr Berlusconi persuaded members of the Northern League party to back down from demands to delay the vote until after the summer recess, which would have been a humiliating blow.

But Mr Berlusconi may not have long to bask in the glow of unity. Major ideological splits, which forced the resignation of Economy Minister Giulio Tremonti last month, will likely resurface after the summer recess.

Malaise has blanketed the government since European and local elections last month when Mr Berlusconi's Forza Italia party lost ground to its three main allies.

Both the coalition's conservative National Alliance (AN) and Democratic Union of the Centre party (UDC) demanded a greater say in government. The Northern League says it will quit the government if it does not push through a devolution bill.

That bill, due to be voted in parliament after the recess, is the main goal for the League which campaigns against the rich north subsidising the poor south and "thieving Rome".

The UDC, which has its power base in the centre and south, has demanded the bill be watered down as one of a number of major policy changes it requires, also threatening to leave the coalition if its demands are not satisfied.

Fact Box

What's The Problem?
Pensions payments cost Italy around 15 per cent of its gross domestic product, a massive and growing burden on a country struggling to balance its budget and reduce the world's third biggest national debt level.

The aging population - a problem for many countries in the West - has been described as a demographic time bomb. In 2040 there will be only one working adult Italian to support each pensioner, compared with 2.5 workers in 2000.

The ratio of senior citizens to children in Italy was the highest in Europe at 127 for every 100, according to Italian data office ISTAT. The European Union average, according to the most recent available statistics, was 97 to 100.

Nearly a fifth of Italy's population of 57 million is over the age of 65 and only 14 per cent is under 15 years of age.

When Can Italians Retire?
The official retirement age for men is 65. But Italy has a pension, known as the "anzianità", which lets you retire at the age of 57 if you have 35 years of work under your belt. This pulls down the national average retirement age to about 59.

What Type Of Pensions System Is It?
Under the current "earnings-related" system, pensions are calculated on the basis of a person's earnings in the last few years of employment. The reform moves Italy gradually towards a "contributions-based" system where a pension is based on the amount a person has paid into the scheme during his or her career - seen as a more sustainable system.

What Will Change Under The New Law?
¤ From 2008 - men can retire at 60 or after 40 years of contributions.

¤ From 2010 - the retirement age rises to 61.

¤ In 2013 this it may be upped again to 62.

¤ Women can continue to retire at 57 as long as they have paid 35 years' contributions.

¤ As an incentive to keep people in work, people who would be entitled to retire with an anzianità pension between 2004 and 2007 but opt to stay in work will be exempt from paying pensions contributions.

¤ For those joining the labour market from 1996, the pension will be calculated purely on the basis of contributions. The retirement age will be 65 for men, 60 for women, unless the person has already paid 40 years' contributions.

Savings
The government hopes to save 0.7 per cent of GDP each year from 2012 to 2018 and 0.6 per centage points of GDP between 2018 and 2030.

What Do The Unions Think?
They oppose the bill and have staged several strikes against it. On March 26, hundreds of thousands of people around the country took to the streets in a general strike. After a similar half-day strike last October, parliament watered down the initial proposal.

Unions have condemned Prime Minister Silvio Berlusconi's use of a confidence vote to force the bill through both houses of parliament and have promised further protests against the government's future economic plans.