Will they get it right this time? So they ask in Italy, talking about pension funds and, generally speaking, the pension reform. The new Berlusconi government’s agenda includes a boost to private retirement plans and many changes to the social welfare system. But this time Berlusconi cannot afford to lose popular support and raise massive trade union opposition, as it happened in 1994. Those days, when he first became prime minister, it was exactly the reaction to the pension reform draft – one million people demonstrating in the streets - that forced him out of power.
So, this time Berlusconi is trying to be very careful and respectful of the ‘concertazione sociale’, the word Italian politicians use to indicate the three side negotiation among the government, employers’ association and trade unions on sensitive social issues. But only up to a certain point.
DPEF (Documento di programmazione economica e finanziaria) – the three years economic and financial programme the government has elaborated and announced last July – offers very clear hints to what Berlusconi’s ministers want to do.
To encourage private pension plans, they want to reform TFR (trattamento di fine rapporto), that is the annual savings that employers are supposed to put aside, as a percentage (6.9%) of employees’ salary, in order to give it back as a lump sum to quitting workers. The total annual savings in TFR is around E14bn and, according to the current rules, employers are free to use this money as they like: they only must ensure that in the end the employee gets a TFR return linked to the inflation (75% of the inflation rate plus a fixed 1.5 percentage point).
Berlusconi’s reform would liberalise TFR: employees would become free to use the annual TFR savings as contributions to pension funds or leave them as they are (actually in 2000 TFR ‘performance’ was 3.4%, which was very competitive compared to existing Italian pension funds’ returns). Moreover, employees would be free to choose between the ‘closed’ pension fund of their industry (the one created and controlled by trade unions and employers’ associations) or any of the ‘open’ pension funds, created and managed by banks, insurance companies and asset management companies. This choice is not allowed today, given the preference for ‘closed’ funds; and this lack of freedom is seen as one major component of the employees’ disaffection towards Italian pension funds, altogether with the very poor fiscal incentives.
The government is thinking also of lowering taxes on pension funds’ capital gains: from the current 11% to maybe 6.25% or less. Someone – like Lucio Francario, the chairman of COVIP (Commissione di vigilanza sui fondi pensione), the Italian authority on pension funds – is proposing to adopt the EET model: exemption on contributions and capital gains, taxation on benefits.
On the other hand, talking of the compulsory pension system, Berlusconi promised to: raise the current minimum benefit up to one million liras a month; abolish any limit to the retirement age; link all future pension benefits to contributions; let retired people get new jobs.
Critics object that Berlusconi won’t be able to keep all promises, because the costs of some innovations – like the raise of minimum pensions – must be balanced by cuts on other benefits. Beside, there is the pending review of the long-term effects of the last two pension reforms, those signed by the former prime ministers Dini (1995) and Prodi (1997).
To discuss all these problems from a ‘technical’ point of view, the government has set up a commission of experts, chaired by Alberto Brambilla, the deputy Labour minister in charge of ‘welfare’ issues. Brambilla has long been a manager with Cariplo (Banca Intesa group), specialised in insurance products and private pensions, as well as being an activist of Lega Nord, the Italian Northern political party led by Bossi, that is currently a member of Berlusconi’s coalition, but was also a supporter of 1995 Dini’s government. Because of his political colour, Brambilla was one of Dini’s advisers for the 1995 reform; he was also appointed in the board of INPS (Istituto nazionale di previdenza sociale), the compulsory pension system for private employees.
The other members of the Brambilla’s commissions are: Elsa Fornero, an economist at the Turin University; Michele Boldrin, adviser of Aznar’s, professor in Madrid and at the University of Illinois; Franco Peracchi, professor in Rome; Daniele Pace, economist and former member of COVIP’s; Massimo Antichi, one of ‘vigilantes’ on pensions’ costs; Angelo Pandolfo, an expert in law; Giuseppe Vitaletti, economist and ‘friend’ of minister Tremonti’s; Francesco Massicci, member of the state accounts division; and Michele Bernasconi.
By September 15, the Brambilla’s commission should come out with an analysis of the public pension system: are the 1995 and 1997 reforms sufficient to keep the system in balance in the next 40 years? Which new measures should be introduced? How could the private plans compensate cuts in the public system?
Afterwards, from September 15 to October, the government will discuss these issues with trade unions and employers’ associations. In the end Berlusconi should decide something: to draw a reform bill and/or use the 2002 Finanziaria – the next year budget law – to take some steps towards the reform.
To be sure, it’s a long way to go to any resolution. As soon as the DPEF was announced and the Brambilla’s commission held the first meeting in July, Confindustria (the employers’ association) and CGIL, CISL, UIL (the three most important trade unions) complained about the government’s attitude.
According to Confindustria, Berlusconi’s proposals are insufficient: he should immediately cancel “pensioni d’anzianità” (the possibility of retiring early, maintaining high benefits) and raise the minimum retirement age. Employers like Berlusconi’s ideas on pension plans, although they don’t directly comment TFR’s transformation into pension contributions: to them it’s a hot issue, because the annual E14bn are a cheap way of self-financing. But they could trade it for more flexibility in the labour market and particularly with more freedom to fire employees and hire them with fixed-term contracts.
All trade unions complain that Berlusconi has already made up his mind and DPEF is too much specific on pension issues, so that next Autumn ‘social concertation’ appears to be useless. But then, unions don’t agree on different subjects. CGIL, that is the former ‘communist’ union, is the harder opponent to labour flexibility, but it’s in favour of linking all future pension benefits to contributions. CISL (the ‘Catholic’ union) and UIL (the smallest of the three organisations) are more open to flexibility, but less willing to touch the old ‘privileges’ like early retirement.
The Labour minister Maroni (Lega Nord) hurried to reassure Confindustria and CGIL, CISL, UIL that next autumn’s discussion will be completely open and the government will take into account the different suggestions.
Nevertheless, other Berlusconi’s ministers have showed a different attitude towards ‘concertazione sociale’. For example in July Tremonti – the economist in charge of the Treasury and Budget – broke the unwritten rules, when decided to give the numbers on Italian public deficit to a public audience with a TV interview and not to CGIL, CISL, UIL within a ‘concertation’ meeting.
Which trend will prevail eventually? The deepening public deficit and the coming euro in 2002 will force Berlusconi to adopt a tight economic policy. That could be a good excuse to take stronger action, cutting public pension benefits and encouraging private plans.

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