Italy in crisis and pensioners in prosperity

07.03.2018 16:05|Marcin Lipka

“Over the course of two decades of economic stagnation in Italy in a country with record low percentages of employed people, there is a group who is not afraid of the crisis. It is made up of retirement households. Their average annual net income is around 30,000 euro, and their assets increased by 60% in 20 years,” writes Marcin Lipka, Conotoxia senior analyst.

Marcin Lipka, główny analityk Cinkciarz.pl

A week in Italy. Loans from popular discounters can be used for information after the elections. It is, however, worth a moment to depart from the political fever on the Apennine Peninsula and look at the economic situation of this region, especially the remarkably good financial condition of pensioners.

Lost years

Italy’s economy is very poor. The GDP per capita has decreased by about 3.5% over the last 17 years. This is the worst result in the entire EU, even when taking Greece into consideration. The employment rate for the working age population (15-64 years) is only 58.4%, according to the latest Eurostat data. This is the second worst result in the EU after Greece.

Over 30% of young Italians (age 20-34) do not get a higher education, improve their professional qualifications and do not work (NEET - not in employment, education or training). This is also the worst result in the entire Union.

The fatal macroeconomic condition and dramatic situation in the labor market translates directly to the income of young people. According to the IMF report prepared in July of 2017, the real net assets of young Italians (age 18-34) now reach only approximately 40% of what young Italians had in 1995.

This does not apply to seniors

Italy’s problems arise from many issues. The country's productivity, according to IMF data, is 6% lower than it was at the beginning of the millennium. At this time, for example, German productivity increased by more than 8%. Over the years, no major labor market or tax reforms have been carried out which support the overall competitiveness of the economy in Italy.

However, there is a group of people that are hardly touched by the long-term crisis; Italian seniors. Since 1995, people over 65 have assets that increased by almost 60%. The real retiree’s annual income compared to values two decades ago is 15% higher, according to IMF data.

Pension Shangri-la

The Istat publication also testifies to senior’s very good condition on the Apennine Peninsula. Data from the Italian statistical office show that the average net income of a household receiving retirement benefits is 29,200 EUR per year. Interestingly, it is practically the same as the average income of working households, which is 30,600 EUR. Pensioners usually need about 60-70% of the income they received during employment to preserve the earlier standard during their golden years, and their households are usually less numerous than those employed.

Someone might say that pensioners earned it, so they should have it. However, this is not entirely true. The pension system is primarily financed from budgetary resources.

The OECD publication entitled "Pensions at a Glance," shows that Italy is allocating 31.9% of all public expenditure on retirement benefits, which is the greatest amount in all 35 analyzed countries. In addition, although the statutory retirement age for women and men exceeds 65 years, resident in Italy receive benefits until the age of 62, on average.

In turn, according to IMF estimates, the replacement rate (the relation of retirement to the last salary) is about 15-20% higher than the EU average. The allocation of such significant resources to pensions results in a consolidation of Italy's economic stagnation. The budget has less funds for education or infrastructure investments. There is not enough money for either research and development, administration reform or tax incentives for enterprises.

The same mistakes

An interesting fact may be that during the last electoral campaign, the majority of the parties outdid themselves in recently mitigating introduced pension reforms. For example, Forza Italia wanted to double the minimum monthly benefit from 500 to 1000 EUR. This means that Italians have not drawn many conclusions from the last two decades and their economic situation has very little chance of improvement.

 


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