Italy europe s biggest age problem matthew edwards watson wyatt
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ITALY : Europe's biggest age problem Matthew Edwards Watson Wyatt. Introduction Demographics Economic context Pensions reform Lessons for other markets?. Italy: Europe's biggest age problem. Summary Longevity Reproduction Immigration Early retirement Conclusion. Demographics.

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ITALY : Europe's biggest age problem Matthew Edwards Watson Wyatt

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ITALY: Europe's biggestage problemMatthew EdwardsWatson Wyatt


Introduction

Demographics

Economic context

Pensions reform

Lessons for other markets?

Italy: Europe's biggest age problem


Summary

Longevity

Reproduction

Immigration

Early retirement

Conclusion

Demographics


Italian population 2000

Demographics


Italian population 2030

Demographics


Italian population projection 2000-2050

Demographics


Old age dependency ratio

number of pensioners per working age member of the population

Italy now: 29-30%

3 workers per pensioner

Italy in 2050: 67-69%

1.5 workers per pensioner

Demographics


Longevity

has increased

continues to improve

similar to other OECD countries

Demographics


Summary

Longevity

Reproduction

Immigration

Early retirement

Conclusion

Demographics


Reproduction

the lowest in Europe!

1.2 children / woman

been the lowest for a long time

will it ever improve?

Reasons?

Demographics


Reasons?

marrying later

children later in marriage

fewer children (more working women)

increased materialism?

effect of increased taxation?

Demographics


Summary

Longevity

Reproduction

Immigration

Early retirement

Conclusion

Demographics


Summary

Longevity

Reproduction

Immigration

Early retirement

Conclusion

Demographics


Early retirement

Italy has one of the highest propensities for early retirement

Looking at the proportion of males aged 55-59 who are working ...

Demographics


Proportion of males aged 55-59 who are working


Proportion of early retirements has been increasing steadily for 20 years

1983: 71% of males 55-59 worked

1998: 51% of males 55-59 worked

Current economic projections

do they allow for such rates?

do they allow for worsening?

Demographics


Summary

Longevity

Reproduction

Immigration

Early retirement

Conclusion

Demographics


Dependency ratio projections

Demographics


Introduction

Demographics

Economic context

Pensions reform

Lessons for other markets?

Italy: Europe's biggest age problem


Italy's national debt as % of GDP

approximately twice that of all other European countries

mid-1990's: 120% cf 60% other countries

Economic context


Economic context


Italy's national debt

how did it get so big?

what's it like servicing a national debt of 120% when interest rates are ~ 15%?

what's it like facing a demographic crisis from such a starting position?

Economic context


Pension costs

Economic context


Introduction

Demographics

Economic context

Pensions reform

Lessons for other markets?

Italy: Europe's biggest age problem


State pensions system (until recently!)

pensions from age 60 M, 55 F

benefit = accrual x average of last 10 yrs' remuneration

earnings revalued by cost of living + 1%

accrual rate = 2%

maximum of 80%

plus benefits for spouses and orphans

Pensions reform


Interesting formulahigh national debt + demographic crisis + highly generous pension system = un grandissimo problema

Conclusion: reduce cost of pensions

Pensions reform


Modifications to pension system

notional defined contribution basis

increase in retirement age

increase in contributions (ie tax)

enabling new private pension vehicles

tax incentivisation for private pensions

Pensions reform


Notional defined contribution basis

notional contribution 33% salary

roll-up at RPI + allowance for GDP growth

apply annuity factor at retirement

Pensions reform


New defined contribution basis in action …

years contributing - 40

GDP growth - assume ~ salary growth

annuity rate at age 65 = 6.136

Result:

33% contribution rate applied to each year's earnings, adjusted for GDP growth, x annuity factor

33% x 40 x 0.06136 = 81% of last yr's earnings

Pensions reform


New system still very generous

Market research showed an average of only 8% of respondents had any intention of going for private pension provision

Pensions reform


Enabling of new private pension vehicles

industry funds (fondi chiusi, closed funds)

for large companies (FIAT) or national trade associations eg rubber & plastic workers

open funds (fondi aperti)

for anyone not able to join fondo chiuso

private pension life insurance policies (PIPs)

Pensions reform


Problems with private pension vehicles

industry funds (fondi chiusi, closed funds)

lengthy authorisation procedure

no reason to popularise

open funds (fondi aperti)

lengthy authorisation procedure

discrimination against - closed funds take priority

private pension life insurance policies (PIPs)

from 2001

Pensions reform


Problems with private pension vehicles

tax bottleneck - premiums against tax only up to 2 x amount of TFR contributions earmarked for pension fund - but political impasse on TFR

small tax incentive:

11% roll-up instead of 12.5%

premiums tax-free but equivalent tax incurred at vesting

constraints on getting money back out

Pensions reform


Problems with private pensions market

Open funds as at 30 Sep 2001:

total of 72

Only 6 with more than 10,000 members

median size: around 1,000 members

average fund size: £1,600 / member

Pensions reform


Problems with private pensions market

Closed funds

PIP life insurance pensions policies

Pensions reform


Introduction

Demographics

Economic context

Pensions reform

Lessons for other markets?

Italy: Europe's biggest age problem


Lessons for other markets?

public awareness

presentation of cuts to State pension

extent of cuts

size of tax advantage for private pensions

ease of authorisation for pension funds

healthcare?

Italy: Europe's biggest age problem


"Le donne italiane devono fare più bambini"Italian finance minister, 2001

Italy: Europe's biggest age problem


ITALY: Europe's biggestage problemMatthew EdwardsWatson Wyatt


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