The demographic challenge on pension systems: empirical results from Italy

Population ageing in Italy is likely to accelerate in the next four decades. Thus, the proportion of the population over 65 years old is projected to strongly increase shifting from 20 per cent in 2010 to 32 per cent in year 2060 (Demographic Projections EUROPOP2010, released in April 2011 by Eurostat). Declining mortality trends, combined with low fertility rates and the approaching to retirement of the baby-boom generations, are, and majorly will be in the next decades, the socio-economic challenge to provide pension income to ageing population. The effects of demographic changes on the Italian pension system are assessed based on projections provided by the Working Group on Ageing Population (AWG) of the Economic Policy Committee. Under used demographic and economic assumptions, AWG projections confirm the demographic pressure on the Italian pension system, which could reveal itself not sustainable in the long run as it relies exclusively on the pay-asyou-go scheme. Reforms aimed at containing the Italian pension expenditure have already been adopted, and further measures are planned for forthcoming years. Anyway, the pension system sustainability cannot be achieved if pension reforms continue to be based on the “goodness” of forecasting and do not move in the direction of the “logical sustainability”, namely towards a sustainability founded on evaluation rules of benefits and contributions linked to the effective situation of the pension system.