Italy: A fundamental transformation

of the pension system Emmanuel Reynaud and Adelheid Hexe

Institut de mbrches Bconomlques el soclales, France

Ztaly completely transformed its pension system in 1995. The reform undertaken is of unequalled magnitude in industrialized

countries. The main innovations introduced comprise the creation of a single scheme covering all employees, as well as the

self-employed; the adoption of a new method of calculation linking the pension amount to contributions; and the introduction of a

flexible retirement age. In addition, measures have been foreseen to encourage the development offunded supplementary pension

provision. This reform, which will transform the ltalian pensions scene, is mainly the result of an agreement signed between the

government and the confederations of trade unions.

fter some 20 years of debate and sev- A eral attempts at reform, Italy has re- cently effected a complete transformation of its pension system. The reform Law that Parliament adopted on 4 August 1995 is far more than the simple adaptation of existing schemes to ongoing socio-econ- omic and demographic change. It implies the elimination of old legislation and the introduction of a new system which is fun- damentally different from the preceding one. The reform is the expression of two intentions. On the one hand, it seeks to en- sure the financial equilibrium of the com- pulsory pension system, in order to bring about a durable alleviation of the very sub- stantial state budget deficit. On the other hand, it aims to introduce new modalities in the way the schemes operate, with a view to perpetuating a public pension sys- tem founded on the principle of solidarity between generations.

What merits attention is not only the magnitude of the change, which has no equivalent in industrialized countries, but also the method adopted. The reform Law stems in fact from an agreement signed be- tween the confederations of trade unions and the government after intense negotia- tions initiated by a proposal from the union side.' The text of the agreement was presented as a draft bill to Parliament, which made few amendments to it? Some restrictive clauses were added, but the spirit and overall structure were not al- tered.

Given the social and financial imbal- ances inherent in the old system, there had been considerable pressure for pension reform in Italy from specialists and ob- servers on all sides for many years. How- ever, no project ever managed to reach fruition. It now appears that an essential prerequisite was the active participation

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Italy: A fundamental tnnsformetlon of the pension system

and agreement of the trade unions. In order for the reform bill to go through, it was necessary to associate the repre- sentatives of working people so that they could unite wage earners behind it. The re- forms initiated by previous governments in the 1990s (notably those led by Amato and Ciampi) were piecemeal, mainly be- cause they did not want to confront head- on the politically touchy question of what are considered to be “acquired rights” (i.e. long-service pensions, public-sector schemes and so on), or were not pursued because of large-scale resistance from em- ployees (the fate of the Berlusconi reform project)? The present reform, adopted by the government of Lamberto Dini (for- merly Budget Minister under Berlusconi and the architect of the latter’s reform pro- ject), uses negotiation as a basis for re- building the coherence of the system; it introduces mechanisms which are fun- damentally innovative instead of essen- tially searching for areas where cutbacks could be made.

The reform centres on the following main principles:

the harmonization of existing schemes by the creation of a single scheme covering all employees in both the public and the private sector, as well as the self-em- ployed;

the distinction between assistance and social insurance or, to use the terminology currently used in France, between soli- darity and insurance;

the creation of a new system to deter- mine pensions, linking them to the amount of contributions paid (and no longer to wage or previous earnings levels);

the introduction of a flexible retirement age;

the application of means testing for the payment of survivors’ and disability pen-

sions, in order to limit simultaneous re- ceipt of various incomes.

Generally, the whole reform is or- ganized around one central element: the creation of a single scheme based on a new method of pension calculation.

Setting up a “contributory” system

The introduction of a new method of cal- culation consisted of going from the old system, where pensions were related to earnings, to a system where they are di- rectly linked to the contributions paid. In other words, it was a change from defined benefits schemes to a defined contribution scheme. Under the old system, pensions were set as a proportion of earnings on the basis of predetermined formulas which differed considerably from one scheme to another. Hence, before the 1992 Amato re- form - which introduced certain restric- tive modifications which were applied very gradually - pension after 40 years of contributions was, for private-sedor em- ployees, equal to 80 per cent of the average salary of the last five years; for civil ser- vants, 80 per cent of the last monthly sa- lary plus 18 per cent; and, for local-govern- ment workers, 100 per cent of the last monthly salary. Under the new legislation, pensions are strictly proportional to the total amount of contributions paid through- out employment; for this reason, the sys- tem has been described as ”contributory”.

In concrete terms, the mechanism is the following: the amount of contributions paid is entered on record on an individual account, the amount is revalued each year in relation to nominal gross domestic pro- duct (the average nominal GDP variation over the past five years) and, at the end of working life, the pension is calculated by multiplying the total amount obtained by

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Italy: A fundamental transtomtion of the pension system

a conversion factor determined by the regulations of the scheme. The value of the conversion factor varies according to age at which employment ceases; this can be between 57 and 65 years, with the factor varying from 4.720 per cent for retirement at 57 years to 6.136 per cent for retirement at 65 years. The pension is then revalued according to changes in prices.

The conversion factor constitutes one of the key parameters of the new system. It allows the transition to be made from the accumulated and revalued amount of paid contributions to the amount of the pen- sion. Its different levels have been calcu- lated in relation to life expectancy at the different ages under consideration (with- out applying any distinction between men and women) and using a discount rate4 equal to the real annual GDP long-term forecast growth rate (value adopted: 1.5 per cent). The conversion factor may be modified every ten years by a decision of the Ministry of Labour and Social Security in order to take into account both demo- graphic change and the effective growth rate of GDP.

In this new system, retirement age is flexible, ranging from 57 to 65 years. Workers who have contributed for 40 years or more nonetheless have the option of retiring before the age of 57, with the relevant conversion factor applied accord- ingly. Payment of pension is also subject to the following conditions: cessation of em- ployment, a total of at least five years of contributions and a pension amount equal to at least 1.2 times that of the new “social benefit” (in other words the minimum means-tested old age benefit) introduced by the reform.

Overall, the financial equilibrium of the system is calculated on the basis of a con- tribution rate of 33 per cent of employees’

remuneration, 20 per cent for the self-em- ployed and recourse to the state budget for the equivalent of 2 points of contributions. The introduction of the new system has al- ready resulted in a considerable increase in contribution levels. For private-sector employees, the rate has gone up from just over 27 per cent of wages to 32.7 per cent from 1 January 1996, without an increase in the overall contributions deducted, thanks to a transfer of contribution points previously allocated to other systems (principally the family allowance scheme, which has a surplus). It must be noted, however, that the system of accumulating the amount of contributions on individual accounts is independent of the real rate of contributions applied: the amounts will be calculated as a percentage of earnings - 33 per cent for employees and 20 per cent for the self-employed, even if for these two categories the contribution rates applied in actual fact in 1996 would be inferior to these rates.

The logic of the new system

The logic applied by the new system con- sists of making pension proportional to contributions and establishing equality of treatment between the different categories of workers. To appreciate fully the reasons for such an approach, it must be con- sidered in the Italian retirement context. The former system was in fact based on a model which has been described as “par- ticularist-clientdist”~ in the sense that, by catering to special-interest groups and fol- lowing the logic of ”political exchange” ~scurnbio politico), a whole range of retire- ment schemes were created providing coverage which varied considerably from one category of workers to another. Conse- quently, at the beginning of the 1990s, Italy

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had more than 50 compulsory basic schemes with very different characteris- tics. The method of calculating pensions, as shown earlier, presented for example notable differences between private-sec- tor, local-government and public-sector employees.

Furthermore, leaving aside the dif- ferences which characterized them, the main schemes applied the same general principle for calculating pensions, namely on the basis of remuneration at the end of working life.6 This method of calculation may have important redistributive effects which are not always desirable. Simula- tions carried out in 1990 demonstrated that, whether in the private or the public sector, calculating the pension amount ac- cording to the formula in force, based on final wages rather than those earned throughout working life, favoured em- ployees in the upper income bracket and penalized those at the At the same time, the calculation of pension ac- cording to the last remuneration received seems to have strongly influenced the self- employed to declare, during their last years of working life, a very much higher income than before, with the aim of im- proving the amount of their pension.

In other words, compared with a frag- mented system which privileged certain categories over others and which, through complex methods of calculation and con- ditions of award of pensions, encouraged mechanisms of transfer or redistribution that were not always desirable or well con- trolled, the new system satisfies two re- quirements: it provides uniformity be- tween different categories of workers, and it produces transparency. On this last point, it is important to note that the new system, while continuing to be financed by the pay-as-you-go method (meaning that

there is no accumulation of funds, the con- tributions paid being used to finance benefits), nonetheless broadly tends in its mode of operation to replicate the system of creating individual savings. The accu- mulated rights are expressed in lire and are revalued annually in accordance with a rate defined in the Law as “the annual capitalization rate” (article 1, paragraph 9), and the conversion of sums accumu- lated on the account is undertaken accord- ing to a system comparable to that for the purchase of a life annuity. This should no doubt be seen as an expression of the diffi- culty of communicating the concept of pay-as-you-go pension financing and the tendency thus to use the savings metaphor to make the mechanism more transparent.

The new method of acquiring rights and determining pension amount in any case fundamentally modifies the system’s mode of regulation. Previously, in order to adapt to the rising cost of pension financ- ing as a result of ongoing socio-economic and demographic change, the system was modified in respect of conditions of eligi- bility and the various parameters of the pension calculation formula. These modi- fications (which included an increase in re- tirement age, extension of the period of contribution payments, reduction in the annual accrual rate, prolongation of the period taken into account to determine ref- erence salary, and changes in revaluation procedures), were of necessity introduced gradually to take into account the commit- ments undertaken; they also required legal measures. The new system, on the other hand, was from the start conceived as fi- nancially balanced and with a double mar- gin for adaptation: through establishing the level of contributions effectively paid, and through changing the different values of the conversion factor. Time will tell

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Italy: A fundamental tmnsformstlon of the pnslom system

whether the hypotheses out of which it has been constructed really permit the finan- cial equilibrium anticipated, but one may nonetheless already observe that modify- ing the conversion factor requires only a simple decision once every ten years by the Minister of Labour and Social Security.

A system conceived in the interests of equity

From the viewpoint of insured persons, the new system was conceived to be more equitable than its predecessor. The concept of justice which it applies consists essen- tially of providing uniform coverage to different categories of workers and ap- plying the criterion of proportionality be- tween the pension received and the con- tributions paid. The mechanisms of redis- tribution within the system are very limited. Under the contributory scheme, obtaining a minimum pension is thus com- pletely dissociated from the mechanism for acquiring rights. In parallel with the in- troduction of the scheme, the reform Law created a new, means-tested minimum old age benefit, entirely financed by the State: the “social allowance”, the amount of which has been fixed for 1996 at some 6,240,000 lire (approximately US$4,000) and which is intended for Italian citizens aged 65 or over.

At the other extreme, a ceiling has been set in order to limit, for high-income earners, the part of salary on which con- tributions are payable and which therefore allow acquisition of rights. This ceiling has been fixed for 1996 at 123 million lire (ap- proximately US$84,600) and it will be sub- sequently revalued in relation to the move- ment of prices. At present, it concerns only a small number of employees, which could nevertheless grow in the future if salaries

increase faster than prices in the long term. This upper ceiling on contributions under the compulsory system has been intro- duced to encourage the development of supplementary provision for high-income earners. Moreover, if there had not been a ceiling (something which was not foreseen in the agreement signed between the trade unions and the government), the new sys- tem would have considerably improved upon the old system’s salary replacement rate upon retirement for the highest income category (senior management), while the rate would on the whole have diminished for the great majority of em- ployees.

Furthermore, the “hard-and-fast” logic of a strictly proportional relationship be- tween pension amount and contributions has been toned down by various amend- ments. The contribution amounts corre- sponding to periods of work undertaken before the age of 18 are multiplied by 1.5. The government will also have to decree legal provisions crediting notional con- tribution amounts in a certain number of cases: sickness, maternity, unemployment, vocational training, absences to raise chil- dren under 6 years, etc. In addition, em- ployees who carried out work considered ”arduous” would be able to benefit from special conditions allowing them to retire before the age of 57. This measure will be financed by the State (250 billion lire were earmarked for this purpose for the year 1996).

Transition from the old system to the new

One of the major difficulties of reforming retirement schemes lies in the time-scale of commitments undertaken and the necessity of taking into account rights al- ready acquired. Within the framework of

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the reform of the Italian system, a solution has been found by creating a distinction between three categories of workers: new- comers on the labour market (contributing as from 1 January 1996), workers with less than 18 years' contributions on 31 Decem- ber 1995, and those with 18 years or more at the same date. The first category will come entirely under the new system. The second category will come under the old system for rights acquired up until 31 De- cember 1995 and under the new one for those acquired from 1 January 1996. The third category will remain entirely under the old system.

In parallel with the introduction of the new system, the old one has undergone a number of modifications. In particular, the process already under way of gradually raising the age for entitlement to pensions has continued. Under the scheme for pri- vate-sector employees, it will be raised from 62 years for men and 57 years for women in 1996 to, respectively, 65 and 60 years in the year 2000. These conditions will be applied to the two categories of in- sured persons covered under the old sys- tem. Moreover, the long-service pension, which involved entitlement to a pension independent of age conditions (the only conditions being related to the length of the contributory period), will be gradually abolished. This is one of the important as- pects of the reform, over which negotia- tions between the trade unions and the government long stumbled before agree- ment was reached in May 1995.' The text of the Law includes all the provisions set out in the agreement.

Initially, the conditions for receipt of a long-service pension will gradually be- come more restrictive. For private-sector employees, who until now benefited from such a pension after 35 years of contribu-

tions, the restrictions will operate accord- ing to a timetable from 1996 to 2008. In 1996, the long-service pension is awarded at age 52 after 35 years of contributions, or without age conditions after 36 years of contributions. At the end of the period, in 2008, the conditions will be the following: age 57 with 35 years of contributions or 40 years of contributions without age con- ditions. Specific transitional measures are also foreseen for public-sector employees, whose entitlement to a long-service pen- sion required only 20 years of contribu- tions before the reform. This category of persons will be able to receive a long-ser- vice pension with a contribution period of less than 35 years, but upon fulfilling age requirements and under a penalty factor which reduces the level of the pension (by 1 per cent for one missing year to 35 per cent for 15 missing years). In 2013, the long-service pension will be abolished and the new flexible retirement age system will be applied to all.

Voluntary provision to complement the compulsory scheme

So it is that, on the whole, workers in Italy today find themselves in very different situations in terms of retirement, depend- ing on their years of membership in a scheme. A certain gradation is evident among current members. The most senior still benefit from the old system though conditions are becoming less and less ad- vantageous, especially for the youngest of them. As for new entrants, they are covered entirely by the new system as of 1 January 1996. For them, as for the most recent current members, the question arises of the level of pension they will be entitled to at the end of their working life. A certain doubt reigns in this regard, aris-

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ing from the logic inherent in the function- ing of the new system. Since the pension amount is not set in reference to earnings, it is difficult to estimate the salary replace- ment rate it will be able to guarantee. Numerous simulations have been con- ducted on typical profiles, but there are several intervening factors, such as con- tribution period, work starting age, age at retirement, career profile (more or less upwards, more or less continuous) and movement of nominal GDP.

Generally, it may be said that, in relation to the old system, the new one particu- larly penalizes those who begin their work- ing life late and those whose earnings rise steeply.

Globally, the new system having been conceived to be less generous than the old one, it is very probable that the replace- ment rates will on average be lower than they were previously. The principal factor which could alter that tendency would be if workers were considerably to prolong working life and to delay retirement to the age of 65. The issue is whether such a change would indeed take place. The re- form Law envisages, in any case, in order to counterbalance the predictable drop in the relative level of pensions provided by the compulsory scheme, measures favour- ing the development of voluntary com- plementary coverage which is funded. For employees, the measures envisaged are to be introduced by collective agreement, and membership must be optional. They will be financed by contributions from employees and employers as well as by the actual system of termination benefits (TFR).9 The total contribution rate is 6 per cent for current employees: 2 per cent de- ducted from wages, 2 per cent paid by em- ployers and 2 per cent deducted from the sums destined for TFR. For the newly em-

ployed who choose to enrol, the whole TFR is deposited in their account and the total contribution then becomes 11.41 per cent.

Upon termination of employment, the measures provide for a life annuity with the option of payment of a capital of up to 50 per cent of the sums accumulated in the account.

Up to now, supplementary pension schemes have remained fairly unde- veloped in Italy: they cover only 1.7 mil- lion employees. The government estimates that almost a third (31.5 per cent) of pri- vate-sector employees who are currently not covered should by the year 2005 be benefiting from the new supplementary arrangement.

Employers and international consultants are more sceptical about the chances of the new measures developing in such a manner. They point particularly to the weakness of the tax concessions conferred by the State and the present advantages of the TFR for financing enterprises. The mechanism envisaged aims to transfer part of this component, and even all of it for the newly employed, in institutions that are separate from enterprises and jointly managed by employers’ and em- ployees’ representatives. As a result, em- ployees would have the possibility of obtaining better returns from the sums in question but, by the same token, enter- prises would lose a particularly advant- ageous source of financing. From the employers’ viewpoint, this constitutes a major disincentive. The law envisages nevertheless an important role for collec- tive bargaining in the process of estab- lishing the measures, and much will depend on the will of the trade unions to secure implementation of the new volun- tary arrangements.

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After the reform: How much social consensus?

The Law of August 1995 on pension re- form was adopted after a relatively brief course through Parliament. The Dini gov- ernment, which came to power as a “gov- ernment of technicians” and did not have a clear parliamentary majority, was deter- mined to complete the reform before the recess and without altering the main out- lines of the May 1995 agreement with the unions. Against the original intention of the government, three votes of confidence were called in order to avoid a debate on some 3,500 amendments proposed mainly by Rifondazione Communista (Commun- ist Left stemming from the old PCI) and, in a more modest vein, Alleanza Nazionale, the party which succeeded the neo-fascist MSI. Compromises had previously been reached with the Northern League and Sil- vio Berlusconi’s Forza Italia to gain at least the neutrality if not the support of the two groupings. While these compromises (translated into ”maxi-amendments” sub- mitted to parliamentary vote) did not af- fect the logic of the reform or modify most of the articles proposed, they nonetheless introduced two significant innovations: 0 a “safety clause” is envisaged for the

period 1996-1998, which allows the gov- ernment to intervene by raising contribu- tions or lowering benefit amounts if the anticipated savings for the forthcoming three years are not realized (this new pro- vision constitutes a concession to Forza Italia);

a ceiling has been added to limit the part of salary subject to contributions.

In both the Chamber of Deputies and the Senate, the reform received a yes vote from the centre-left parties and the North- em League, while Forza Italia abstained.

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Rifondazione Communista and Alleanza Nazionale voted against.

Apart from those groupings which hoped to maintain the main features of the preceding system, most specialists and observers were both convinced of the necessity of a structural reform of the pen- sion system and ready to support the main innovations of the new model. Hence, the method of calculation based on contribu- tions appeared as a positive achievement even in the view of the employers, who were otherwise very reluctant to support the reform overall. A stabilizing effect on expenses is expected from the link estab- lished between the acquisition of rights and the growth of GDP. Another aspect which has been considered positive is the fact that the reform puts an end to the structural distortions of the preceding system (such as inequality among the numerous existing schemes and the redis- tribution in favour of those with rising in- comes to the detriment of those whose in- comes remain static). Moreover, the trans- parency of the regulations also appears to vouch for the viability of the system. In ad- dition, trade union approval of the reform is widely perceived as a contributing fac- tor to the stability of the system in the long run. Finally, it is estimated that the reform strengthens Italy’s credibility in the inter- national financial markets, which did in fact react positively to the adoption of the Law.

Even while recognizing the positive ef- fects of the reform, some specialists are nonetheless very critical of several points which they see as structural weaknesses. The employers’ associations, the Bank of Italy and the National Audit Office par- ticularly criticize the slowness of its im- plementation: the transitional phase is considered too long and the increase in the

Itclly: A fundamental tnrnrformaion of the pnaion system

retirement age too gradual. They are also of the view that the savings brought about by the reform over the next ten years (esti- mated at 108,340 billion lire) are insuffi- cient to reduce the national debt and would at the most contribute to containing its growth without really allowing it to be mastered in the long term. In this view, the Italian pension system would therefore need to go back to the drawing board in the more or less short term.” Moreover, not all the advocates of increased rigour are ready to accept the argument of “social acceptability” implicit in the reform, whereby unity must be sought rather than risking the opposition of wage earners from whom sacrifices are demanded to en- sure the survival of the system.

It is within Confindustria, the em- ployers’ association for the private sector, that the most vehement reservations are to be found. Confindustria had refused, dur- ing the negotiations between the govern- ment and the trade unions, to be associ- ated with the elaboration of a reform pro- ject and had disapproved of the agreement reached. In an editorial entitled “A step which is not a turning point”, Innocenzo Cipolleta, its director general, stressed the “costliness and iniquity” of the new sys- tem, which on those counts hardly dif- fered (in his view) from the previous system, and asserted that ”substantial re- forms” would be needed in the future: “Nobody will be able to say that they have already paid because, with this re- form, it is the State which will continue to pay, with the debt of the Italian people.”

The trade union confederations which played a central role in the elaboration of the reform stress that, on the contrary, a historic turning point has been reached with the introduction of a new pension system. For the secretary general of the

CGIL, Sergio Cofferati, the reform “has re- established a situation of security for mil- lions of people, created equilibrium for the social insurance system and given the country its credibility back. Having adopted a high profile to explain the pur- pose of the agreement between govern- ment and unions after it had been signed, the union confederations fell relatively silent after the Law was adopted by the Chamber of Deputies and the Senate three months later. The reasons for this circum- spection owe more to intra-union discord than to those amendments introduced by the deputies which did not find favour with the unions (particularly the safety clause and the provision for the Minister of Labour and Social Security to revalue the conversion factor every ten years).

In fact, at the same time that the trade unions demonstrated their capacity to in- tervene on the political scene, positioning themselves in a way as guarantors of social peace, they also helped to render more visible the limits of social consensus. The unions’ arbitration role as written into the agreement is contested not only by Rifon- dazione Communista but also by a signifi- cant minority within the labour movement itself. To prevent the risk of internal divi- sion, the unions had taken care to hold a very large-scale consultation in Italian en- terprises following the signature of the agreement with the government. While 64 per cent of the employees, pensioners and students consulted approved the re- form project, strong opposition emerged in the industrialized regions of the north and particularly in the metallurgical sector: in other words, the very rank and file of the CGIL, the biggest union grouping. The abolition of the long-service pension and the increase in years of contribution were at the centre of the discord but, more signi-

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ficantly, the more extremist voices refused to endorse the strategy of “political ex- change’’ pursued by the union leadership. They challenged their confederation’s power to arbitrate on a question of such importance. These workers, whose excep- tional mobilization successively brought about both the withdrawal of the pension reform project of the Berlusconi govern- ment and the fall of that same government, felt to a great extent betrayed by their unions.

The secretary general of the FIOM, the metallurgy union within the CGIL., was no doubt underestimating that discon- tent when he observed that “the great movement of the autumn has achieved an important solution, but one that does not come up to expectations”. Involved in the reorganization of the pension system thanks to a social influence that other, possibly less powerful protagonists are ready to concede to them, the trade union confederations find their representative- ness and capacity for arbitration contested from within their own ranks.

Notes

The following newspapers were the sources for this article: Gazzetta Uficiale, I1 Sole 24 Ore, La Repubblica and Nuova Russegna Sindicale. A first version was published in ZRES Chronique inter- nationde, No. 37, November 1995.

1. See “Italie. Reforme des retraites: des mouvements de g r k e au projet de loi negocie”, in ZRES Chronique internationale, No. 35, July 1995.

2. On the draft bill, see Antonio Salafia, “The draft legislation for reform of Italy’s compulsory and complementary pension schemes”, in Inter- national Social Security Review, No. 3-4/95,

3. On this last period and previous attempts at reforms, see “Italie: Conflit sur la reforme du systeme de retraite entre le gouvernement et les

pp. 143-150.

syndicats”, in ZRES Chronique internationale, No. 31, November 1994.

4. This means the forecast discount rate of the benefits to be paid.

5. See Ugo Ascoli, ”RCforme du syst$me de retraite public et instauration de regimes com- plementaires en Italie: vers un mod6le toujours plus ’minimaliste’?”, in Revue de I‘ZRES, No. 15, Summer 1994, pp. 177-194.

6. The Amato reform of 1992 modified on this point the situation in the scheme for private- sector employees: for the new members (as of 1 January 1993), the calculation is made on the basis of earnings throughout working life.

7. See Ascoli, op. cit., pp. 178-180. 8. See “Italie. Reforme des retraites: des

mouvements de gr6ve au projet de loi n6gocie”, in ZRES Chronique internationale, No. 35, July 1995.

9. Employers in Italy are obliged to pay each employee a termination indemnity. In the pri- vate sector, this is called TFR (trattarnento difine rapporto) and is financed by an annual employer contribution equal to 7.41 per cent of wages. The corresponding amounts are entered on individ- ual accounts and slightly revalued (for an infla- tion rate superior to 6 per cent, the real rate of return may even be negative). At the end of his or her working life with the enterprise, the em- ployee receives a capital equal to the sums accu- mulated in his or her account. The TFR in fact constitutes a fairly cheap self-financing method for Italian enterprises.

10. This is also the editorial analysis of foreign dailies, such as the British Financial Times or the German Siiddeutsche Zeitung, which, while underlining the ”timidity” of the reform, point to its “social” advantages; according to them, the agreement with the unions resulted in social peace being maintained and created the basis upon which new reforms could be intro- duced in the future in a more serene manner.

11. In the newspaper JI Sole 24 Ore of 5 August 1995.