ITALY - Government proposals to try and provide a minimum replacement ratio of at least 60% of net earnings are "contradictory" and will confuse younger savers, Mercer has claimed.

In the Welfare Protocol, published earlier this month, the Italian government confirmed it would "phase in" an increased retirement age to reach 61 by 2013 and to delay the revision of conversion factors for annuity rates until 2010.

These reforms have been described as a "watered down" version of the original proposals put forward in 2005 following political pressure from unions, but Mercer has warned the new proposals are still creating a "lot of doubts in the minds of the people".

In particular, Carl de Montigny, retirement leader for Mercer Italy, said the decision to include a proposal requiring there be no pension lower than 60% of net income is "contradictory"to the existing system.

"We have a notional DC plan in place where people accumulate an individual account, but now there is suddenly discussion about reinstating a minimum benefit," he said.

The proposal was agreed between the government and social parties but de Montigny points out there are issues over how such a minimum benefit would be financed and enforced, adding he believes the idea is more of a "political promise than something which could be implemented".

De Montigny also claimed the reform of the conversion factors for annuity rates is being implemented in order to provide stability for a minimum guaranteed replacement rate.

However, Mercer points out the figure is still just an estimate as the government plans to appoint a technical committee to review the issue, including the conversion factors, in more detail.

"In a country where the pension awareness and culture among the younger generation is low about the state DC scheme, to receive a message that there probably will be a minimum guarantee is a bit contradictory and confusing," de Montigny added.

But Livio Mocenigo, managing consultant of Watson Wyatt Milan, argued the Welfare Protocol does not imply a guarantee, and instead "generically mentions" a specific commission which could "propose active policies that could help achieve a replacement ratio of not less then 60% net of taxes".

"This does not sound like a guarantee and I am personally sceptical that any specific replacement ratio can be guaranteed by the state pension at any given point in time," he said.

The technical commission is expected to be in place by the end of the year, while the conversion factors are currently scheduled for review in 2010, with future appraisals planned for every two to three years.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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