Ca’ Foscari University,Venice The Italian Social Protection System: a Long Term Perspective Agar Brugiavini Ca’ Foscari University,Venice Component Two- 2016 Training Course “European practices in the Governance, Financial Management and Strategies for a Sustainable Social Security System” Italy, October 16th -30th, 2016

Social Security in Italy in brief : a «recap» Index Social Security in Italy in brief : a «recap» Labour Force Participation patterns over time in Italy and Europe Perspectives for the future of Social Security in Italy A comparison: Patterns of Retirement in China and Europe

Earnings related social security benefits Replacement rate is 80% Background 1969 to 1992 Earnings related social security benefits Replacement rate is 80% Legal retirement age 60 (men) 55 (women) Can retire at any age if 35 years contributions completed, with no actuarial penalty

Social Security Reforms The years of major SS reforms (1992-1995): Amato reform (D.Lgs. 503/1992) Dini reform (L. 335/1995). “Parametric reforms” (1996-2011): …many until the……..Berlusconi reform (D.L. 78/2010, D.L. 98/2011). Monti reform (L. 214/2011).

Social Security Reforms 1992 “Amato” Reform Less generous benefits Legal (old age) retirement age gradually reaching 65 (men) 60 (women) 1995 “Dini” Reform Notionally defined contribution pension benefits More stringent eligibility requirements for early retirement Window of retirement ages (57-65) with actuarial penalty To become fully operational after 2030

Monti Reform of 2011 Meant to guarantee equity and sustainability to the social security system Link the retirement age to the life expectancy progressive increase in the retirement age Transition to the contributive system (pro rata) for the calculation of pension benefits Two possibilities: Old age pension Anticipated pension

Impact on the labour market Reforms have long term effects They change the structure of incentives One major impact is on the LABOUR MARKET When planning social security reforms one has to think about future effects on the choices of people/workers

Labour Force Participation Rate of Italian Men - ages 55-59, 60-64, 65-69

Effect of Incentives The eligibility requirements in terms of age of entry into retirement have an impact on the labour force In the age-group 55-59 a U-shaped pattern. Men now work until older ages! But there are different way to exit the labour force; pathways to retirement

Pathways to retirement

Pathways to retirement by gender and age group

Why do we see these long term trends? Combination of education differences between cohorts and …………..social security rules

Education and employment Source for education data: Bank of Italy SHIW

2011 Monti reform (effective as of Jan 2012) Effect of incentives 2011 Monti reform (effective as of Jan 2012) Sudden increase in old age retirement age, then retirement age linked to life expectancy (hence further increase in retirement age in the future) Immediate and dramatic increase in years of contributions to access early retirement Shorten transition to NDC, hence benefit reduction for a number of transition cohorts

Incentives: Eligibility ages and employment rate for men age 55-59

Eligibility ages and employment rate for men and women (60-64) Old age men Old age women Early ret

Public expenditure for pensions (percentage of GDP)

Public expenditure for pensions by gender (percentage of GDP)

Urban workers leave the labour market early Trends in China? Evidence from the CHARLES Surevy (China Ageing and Retirement Longitudinal Survey) Urban workers leave the labour market early Compare with Europe (SHARE: surevy of Health Ageing and Retirement in Europe)

Old age dependency ratio Source: United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2012 Revision, New York, 2013.

Employment rates by age cohort in China Based on: National Bureau of Statistics, 2000 Population Census Statistical Materials (2002) and 2005 One-Percent Population Sample Statistical Materials (2007), China Statistics Press, Beijing. Source: John Giles, D. Wang, W. Cai “The Labor Supply and Retirement Behavior of China’s Older Workers and Elderly in Comparative Perspective”

Employed vs. retired EUROPE– SHARE sample .2 .4 .6 .8 1 50 60 70 80 90 age of respondent worker retired allother Self-Reported Ecomomic Activity by Age Figure 1 All

Work status of respondents in CHARLS Source: John Giles, Xiaoyan Lei, Yafeng Wang, Yaohui Zhao, “Institutional Determinants of the Retirement Patterns of China’s Urban and Rural Residents”

Retirement rates – evidence from CHARLS

Retirement rate in China Source: John Giles, Xiaoyan Lei, Yafeng Wang, Yaohui Zhao, “Institutional Determinants of the Retirement Patterns of China’s Urban and Rural Residents”

Important similarities in the long term trends in Europe and China Conclusions Important similarities in the long term trends in Europe and China …..Chinese workers respond to incentives as much as Italian workers.. Thank you!