The shift to the defined contribution pension scheme: an Italian case

Many countries are facing up to the problem of the financial sustainability of their pension systems by the transition from the defined benefit scheme to the defined contribution one. However, the defined contribution formula alone does not guarantee sustainability. There are many economic, financial and demographic factors to be taken into consideration, the first of which being the rate of return to be paid on contributions and benefits. This article deals with the shift to the defined contribution scheme in contexts of economic and demographic instability, in which the steady state does not occur substantially, with reference to one of the largest Italian statutory pension systems for professional workers. We propose a new way to structure and manage a pension system on the basis of a general principle, we also provide a proper rule for the rate of return on the pension liability as well as a pension indexation rule differentiated for both defined contribution and defined benefit pensions in order to improve intergenerational equity.