Demographic Trends and Pension System in Italy: an Assessment of 1990s Reforms

. In the last decade the Italian pension system underwent many changes. The process has started in 1992 with three major reform laws (passed in 1992, 1995 and 1997), supplemented by many other minor changes. Among the innovations introduced in the pay‐as‐you‐go social security system, the most important one is the more explicit link between pensions and contributions, and pensions and life expectancy at retirement. The purpose of this paper is to provide an assessment of both the short‐term and the long‐term effects of the social security reforms on pension expenditure. Notwithstanding the slowdown in the growth rate of the pension expenditure/GDP ratio, the measures adopted so far will not be sufficient to eliminate the existing social security deficit in the next decades, particularly under the assumption of moderate economic performance and rapid population ageing. Reducing public pension expenditure requires the completion of the 1995 reform, a more rapid move towards a multi‐pillar pension scheme, and the implementation of the much needed growth‐enhancing structural reforms.