Italy court ruling forces Renzi to take on pension reform, extra expense

Austerity measures from 2011 are resulting in new and unexpected expanses for the debt-ridden Italian government. But the real expense may come later this year when the Matteo Renzi government takes on always-difficult pension reform.

By some measures, Italy has the most expensive pension system in the European Union in per capita terms. And reforming pensions - whether by reducing benefits, changing the way benefits are calculated, or raising the retirement age or the number of years of contributions required to qualify for a pension - has been a tempting target for many governments looking to reduce debt. But most reform attempts have ended badly.

In 2011, as part of a broader austerity package, it was the government of Mario Monti that took a swing at reducing pension spending with the Fornero Reform, named for Elsa Fornero, then Monti's Minister of Labor, Social Policies and Gender Equality. The reform cut expenses by blocking cost-of-living increases for any pensioners earning more than about 1,400 euros (around 1,525 U.S. dollars) per month in pension benefits.

Earlier this year, the country's highest court struck down the Fornero Reform handing the Renzi government an unexpected bill to pay.

According to Pietro Paganini, president of the Competere think tank, the vote was as close as possible: a 6-to-6 verdict, meaning the decision of the president of the court carries more weight in order to break the tie.

Renzi agreed to make up some of the difference starting in August, paying those pensioners who earn more than the 1,400-euro threshold an average of an extra 500 euros (about 550 U.S. dollars) per month, with most of the increase coming for those on the lower end of the scale.

"It makes for an unexpected expense of around 2,2 billion euros (2.4 billion U.S. dollars) for the Renzi government," Felice Roberto Pizzuti, a professor of political economics at La Sapienza University in Rome, told Xinhua. "But that's still a lot less than the 17 to 19 billion euros (18.4 billion to 20.7 billion U.S. dollars) it would have cost if the cost-of-living increases has been included each year since 2011, as they should have been."

The big expense could come later on. Renzi said he would unveil an "important" reform to the pension system as part of the country's 2016 budget. The prime minister has been short on specifics so far, and there is no way to know if Renzi plans dramatic changes or will simply tweak the current system. There is no way to know until October or November, when the budget proposal is released.

Most Italian leaders who have taken action in this area have opted to make small changes to a pension system where every reform move is scrutinized by trade unions, industry groups, the treasury, and the courts.

Pizzuti and others say the system is in need of a top-to-bottom overhaul. Renzi has made his name so far from his aggressive reform agenda. Experts say it could be his biggest accomplishment to date if he manages to make Italy's pension system more affordable, equitable, and efficient. Endit