Is the INPS collapsing?
Italy’s pension system is in a critical situation that looks set to worsen. With pension expenditure reaching 16.3 per cent of GDP in 2021 (exceeded only by Greece and well above the European average of 12.9 per cent), Italy faces a structural problem that requires prompt action. This article explores the factors behind the crisis, from the low employment rate to the growing demographic imbalance, and suggests how targeted investments can offer a solution for the future.
The weight of pension expenditure on Italian GDP
In 2023, the pension system absorbed around EUR 347 billion, more than half of which was spent on early retirement and old age pensions. Inflation has led to a 7.1% increase in pensions, putting further pressure on public finances. Moreover, the effective retirement age is only 64 years, while the replacement rate – the percentage of income that pensions cover compared to final salary – is 59%, well above the EU average. These two elements, together with the generosity of pensions, contribute to making the system unsustainable.
Demography and dependency ratio
Another crucial issue is the dependency ratio, i.e. the ratio of active workers to pensioners. With around 2.4 workers for every pensioner, Italy has one of the highest dependency rates in Europe, at 41%. This demographic imbalance is amplified by the ageing of the population: a phenomenon that will lead, in the coming decades, to an increasing number of pensioners compared to contributors. This scenario makes the need to find solutions that can reduce the burden of the pension system on the state budget all the more urgent.
Past reforms and the need for future action
Reforms introduced in the 1990s, such as the Dini Law and the Fornero Law, have already attempted to reduce the generosity of pensions by introducing the contributory system for calculating allowances and gradually raising the retirement age. However, these interventions have not been sufficient to make the pension system truly sustainable. Structural changes must go further, aiming at reducing access to early retirement and encouraging workers to stay in the labour market, including through economic incentives.
Why invest to ensure individual financial stability
Considering the uncertainty of the pension system, it is essential that Italian workers consider investment strategies to ensure a supplementary income in retirement. Here are some ways to address this issue:
- Pension funds: these instruments, often with tax advantages, allow the accumulation of capital that can supplement the state pension.
- Diversified investments: choosing between stocks, bonds, and diversified investment funds can offer a safe and continuous return over time.
- Individual savings plans: allocating a share of income to long-term investments, such as real estate or savings accounts, can offer greater financial peace of mind.
In an environment where the pension system is increasingly uncertain, personal financial planning becomes crucial. Investing in instruments that can guarantee a supplementary income is a prudent choice that can ensure economic stability and peace of mind in retirement.