The Parliamentary Budget Office (PBO) in its Focus no. 6-2016 (of which we have elaborated a summary of the aspects in our opinion essential) addressed the issue of flexibility in retirement by focusing attention on the implications that the retirement rules they may have on the labor market. The Report then reviews the main proposals for restoring flexibility, the one put forward by the Hon. Cesare Damiano and the one presented by the INPS president Tito Boeri, and lastly the Pension Advance (APE) on which the Government is working (together with the trade unions). Even if no longer central to the debate – as the PBO considers them – the first two proposals offer a point of reference which can be useful for designing new solutions. It is for this reason that the Focus provides an impact assessment starting from the dataset of active workers from INPS sources (with reference to employees and self-employed workers). Of the government proposal (APE) some profiles are highlighted – as it is still largely unfinished – which will be important to follow in the context of its operation. The Report (edited by Nicola C. Salerno with the collaboration of Emilia Marchionni) starts from the criticisms directed at the Fornero reform (from which derives a cumulative saving of 88 billion in the decade of 2012 - due to the effects on the dynamics of work and productivity. Older workers, already expelled from the market due to the crisis or who had made the choice to stop working, saw their retirement date move away and the prospect of waiting a few years without income from work or retirement was envisaged.
The clearest answer to these difficulties is represented by the seven safeguard measures which, between 2012 and 2016, exempted particular groups of workers from the new retirement requirements. These are extraordinary measures which, if they have alleviated the problem, cannot constitute a permanent component of the pension system. Recent analyzes also show that the tightening of the requirements for access to pensions decided by the reform may have contributed to slowing down the physiological generational turnover and delaying the recovery of productivity. It is in this perspective that the discussion on the introduction of forms of flexibility in the retirement requirements takes place. A salient feature of flexibility is the option for the worker to choose when to retire within an age range, accepting the general principle that the allowance is of a lower amount if one retires before the normal requirements. It should be noted that if the general change, at an international level, goes in the direction of raising the retirement age, many countries take care to maintain a certain degree of flexibility in the final part of active life (for example, with forms of gradual exit from work with part-time, demotion pathways, support for young people) and on the same date of retirement (with incentives to extend work on a voluntary basis).
In the Italian case, according to the PBO, the reforms that have taken place in recent years have had the desired effect of increasing the participation and employment rates in the 55-64 age group, which were previously among the highest low in Europe (about 10 percentage points below the euro area average). However, these improvements have been accompanied by a very sharp decline in the employment rate of the younger age groups (15-24 and 25-49). The intensity of these divergent trends seems to be an Italian peculiarity and is one of the reasons (although not the only one) for the debate on flexibility. The effect of retirement rules on the labor market and, in particular, on employment rates by age is extensively analyzed in the economic literature. According to the long-prevailing trend of the lump of labor fallacy; in a growing economy, older workers do not take away opportunities from the younger ones but contribute to expanding the overall productive potential. More recently, this general view has been enriched by contributions which suggest avoiding too sharp and abrupt increases in retirement requirements, especially in times of economic crisis and labor market difficulties. In the last months of 2015 and in the first months of 2016, the discussion focused on two proposals for flexibility, which are briefly indicated as "Damiano" and "Boeri". Both provide for an additional exit channel to the already existing old-age and early retirement pensions with criteria that do not satisfy actuarial neutrality. The "Damiano" flexible pension would be aimed at a very broad audience, while the "Boeri" would be more selective, an aspect that produces asymmetric effects between men and women and between employees and the self-employed. In the estimates of the Parliamentary Budget Office (UPB), referring to the employee pension fund (FPLD) in the strict sense and to the management of self-employed workers9, if all those who had the opportunity to take advantage of the "Damiano" flexible retirement actually did so , in 2017 there would be greater public spending of over 3 billion euros, increasing to reach 8 billion in 2024. The "Boeri" flexibility would weigh less on the public finances: from 650 million euros in 2017 to 2,8 billion in 2024. The consideration of other job categories, starting with the public sector, would obviously increase these figures. Public workers earn significantly higher average pensions than those in the private sector (between 70 and 75 per cent more), as a result of longer and more continuous careers.
The government proposal (APE) under discussion has a different structure and arises from the need to reduce the impact of flexibility on public finances as much as possible. Each worker would be called upon to personally bear the costs of his early access to retirement, with public assistance that would be activated only in favor of the lowest incomes. Up to here the Focus is limited to illustrating the open problems, without however renouncing the costs that public finance should bear, albeit with different amounts in the two cases in question.
The “Damiano” proposal
In this proposal, retirement would be possible from the age of 62 and with a minimum seniority of 35, without distinction between men and women. Percentage reductions of 2% per year up to a maximum of 8% in the case of retirement before the age of 66 would be applied to pension pay shares. The reductions would be transformed into similar career extension bonuses in the case of retirement from the age of 67 onwards. The only constraint for the "Damiano" flexible retirement is that the final amount of the pension (after any reductions) reaches at least 1,5 times the social allowance, approximately 670 euros per month (8.730 on an annual basis for 13 months). It is not specified whether the ages and seniority of the matrix are indexed to the progress of expected life. After 41 years of seniority, retirement is possible without age constraints and without reductions on the allowance.
The "Boeri" proposal
The proposal would like to extend the retirement channel to all workers with at least 63 years and 7 months of age and 20 years of contributory seniority, with linkage to progress in expected life. This possibility is now accessible only to those who fall within the notional accumulation calculation rules (newly hired contributory workers from 1996 onwards), provided that the pension is equal to at least 2,8 times the social allowance. The extension would add two qualifying aspects: a reduction of 3 per cent would be applied to the salary portion of the pension for each year that separates the flexible retirement age from that of normal old-age retirement; the amount of the pension (after abatement) could not be less than 1.500 euros gross for twelve months (18.000 on an annual basis). Although higher than the highest value assumed by the reduction per year of flexibility in the "Damiano" proposal (2 percent), even the 3 percent of the "Boeri" remains below the actuarial neutrality.
Gianni Geroldi's simulations
Although higher than the highest value assumed by the reduction per year of flexibility in the "Damiano" proposal (2 per cent), even the 3 per cent of the "Boeri" remains below actuarial neutrality (as, even more so, that of Cesare Damiano). The Focus, in fact, refers to a recent work by Gianni Geroldi ("The burdens of flexible retirement"), created with some micro-simulations on typical workers. Geroldi calculates which reductions would actually be neutral from an actuarial point of view, i.e. which corrections would keep the present value of the benefits unchanged over a horizon equal to the worker's expected life. With four-year advances, pensions would be reduced by between 24 and 30 percent of their hypothetical amount at full requirements (age or seniority). According to the author, these values – the sum of the penalties and the lesser contributions – would lead to a possible problem of treatment adequacy. But conversely it emerges from these simulations that both Damiano's and Boeri's proposals are far from achieving the actuarial fairness that would be necessary and that is heralded. Hence the hardly sustainable burdens, mentioned above. Geroldi also considers the reductions that would be neutral from an actuarial point of view, i.e. those corrections that would keep the present value of the net benefits unchanged, over a horizon equal to the worker's expected life, in the two alternative scenarios: the flexible exit and the to full requirements. Assuming a nominal interest rate of 3 percent, the actuarial discount would be about 10 percent for one year down payment, about 16 percent for three years down payment, about 21 percent for four years in advance.
The effects on youth employment
With regard to the presumed negative effect on the recruitment of young people, the PBO recalls the estimates made by authors (moreover also by INPS in its latest Report) who grappled with this problem: a five-year postponement of the worker (for example a worker blocked for five years or two workers blocked for two and a half years, etc.) imply one less young person hired. Projecting these results onto all firms with more than fifteen employees in the private sector which remained active throughout the period 2008-2014, the authors estimate that the 2011 reform would have reduced the hiring of young people by 37 units, around a quarter of the drop in recruitment of young people recorded in the period (obviously net of the non-renewal of the turnover in the public sector, which also has other reasons). It would not seem that it was a matter of ''devastating effects'' in the face of a recovery to active life of elderly workers. Firstly, according to a substantial part of the social security literature, the workforce of different ages are not homogeneous in terms of skills and vocations and therefore the different generations are complementary rather than replaceable within the workforce. From this perspective, a generational turnover encouraged or even induced by early retirement measures could unbalance the composition of the labor force and have negative effects on productivity. Secondly, higher pension spending would translate, if financed on a pay-as-you-go basis, into higher taxes and/or mandatory contributions, with distorting effects both on the labor supply side and on the of the question. Finally, the composition of public welfare spending is also called into question which, being excessively unbalanced on the pension chapter due to excess expenditure at low ages, lacks sufficient resources to devote to other welfare institutions (active and passive labor policies, conciliation life-work, family and non-self-sufficiency policies, training, etc.).
The APE and the RITA
According to the PBO, the draft government proposal is clearly less convenient for the worker and involves less involvement of the public finances. The cash flows of the flexible pensions would not come from the INPS budget but from the banking-insurance system with market costs which in all probability will imply, for the repayment of the bank loan, reductions higher than the "Damiano" percentages (no more than 2 per percent per year) and “Boeri” (3 percent). The APE could be accompanied by the Advance Temporary Supplementary Income (RITA). It would consist in the decoupling of the requirements for access to the pension benefit between the public pillar and supplementary private pillars (pension funds and insurance policies for retirement purposes), so that the private pension becomes claimable a few years in advance and can also function as an income "bridge" until the maturity of the old age or seniority requirements in the first pillar. Only then would the worker be taken over by the pension system which would also collect the loan in installments.
