MNI INTERVIEW: Italy Pension Overhaul Unaffordable- PM Advisor

--E300 Billion Cost Of 5 Star, Lega Plans Unsustainable: Leonardi

By Silvia Marchetti

     ROME (MNI) - An overhaul of the current Italian pension system as proposed

by both Lega and the 5 Star Movement would be unsustainable for the public

finances, a senior official of the outgoing government told MNI in an exclusive

interview.

     "Scrapping the Fornero pension scheme would cost between E80 and E300

billion in the long run, as any changes to pensions entail additional public

costs spread out across decades," said Marco Leonardi, financial advisor to

current prime minister Paolo Gentiloni. 

     Lega and the 5 Star Movement, the two parties seen as the main winners in

the wake of the recent election, have both pledged to abolish the current

pension scheme,  introduced back in 2011 by then prime minister Mario Monti. 

     The pension reform, dubbed the Fornero plan after the Welfare minister Elsa

Fornero who defined it, was part of the emergency austerity plan put in place by

Monti to off-set the risk of a sovereign debt crisis by adjusting public

finances to reassure investors. 

     Leonardi told MNI that extra public spending linked to a total reform of

the pension system, even if not immediate, would nonetheless be unaffordable and

would likely spook the European Commission over the deficit implications. 

     "I am not saying the current system is untouchable, just that any reform

must be approached in a gradual and prudent way so as to minimise its impact on

public finances," he said. 

     --BUDGET PRESSURE

     It was one of the most drastic reforms introduced to curb spending and

tighten Italy's under-pressure budget. The 2011 pension scheme raised both the

minimum retirement age for workers and their compulsory years of contribution. 

     In an interview with MNI prior to the Mar 4 vote, Lega leader Matteo

Salvini said that a thorough pension revision was among the top priorities of

the centre-right coalition. The coalition topped the polls with 37% of the vote

and will likely form a key pillar of the new government. 

     Through the years of budgetary pressure, Rome's government has tried to

cope with the soaring pensions issue, argued Leonardi. Italy has among Europe's

highest levels of pension spending, made more difficult by the ageing

population. Social welfare spending generally is set to increase ahead, he

warned. 

     Therefore, any adjustment benefitting workers in the short run will come at

the detriment of public finances in the longer term and would be "catastrophic"

for Italy, he said. 

     "Today's pension spending, topped with other welfare expenditures like

health, accounts for 29% of GDP and these funds tilt in favour of old people, of

course," he said. 

     --PARTIAL REFORMS

     In his view, it would be more feasible and sustainable if any reform that

changes the outlook be adopted gradually, step-by-step and by privileging most

penalised workers.

     "No given government, no matter which party or coalition of parties that

govern, can afford to scrap the reform in its entirety. The reform can  be

reformed, improved in certain areas, certainly, but with great caution,"

Leonardi added.  

     "In the short term, one aspect which can be modified is the gender issue:

allowing women to retire before a certain age, say at 63, rather than having

them reach a compulsory target of 41 years of paid contribution given that few

women actually work that long," added Leonardi. 

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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