Europe looks to pension reforms to ease economic crisis
IN ROME — Vincenzo Di Vita celebrated his retirement after nearly 40 years with the Italian postal service with a modest toast given by his co-workers in early December. He planned to hold a party at his home a few weeks later — but by then, he could no longer afford it.
Just days after Di Vita accepted a buyout designed to carry him until his government pension kicked in, Italian Prime Minister Mario Monti unveiled a program of tough measures to rein in public spending in the deeply indebted nation. Among the most radical changes: raising the minimum retirement age for men with Di Vita’s work experience from 62 to 65.
Di Vita was suddenly without a job and without a pension.
As many as 390,000 older Italians are in a similar predicament, and these “esodati” have moved to the center of the debate over whether austerity cuts are going too far.
As countries in Europe and beyond grapple with ballooning deficits and debts, government spending on pensions has become a popular target. The International Monetary Fund has recommended raising retirement ages to ease the financial burden associated with rising life expectancy.
More than four-fifths of the countries in the Organization for Economic Cooperation and Development, which represents advanced and emerging economies, are raising retirement ages or planning to do so. Fourteen countries — including several on the front lines of the European financial crisis, such as Italy, Spain, Greece and Ireland — are looking to increase their retirement ages to between 67 and 69 by 2050.
In Europe, the push for higher retirement ages represents a dramatic rewrite of the continent’s postwar social compact, and measures that keep people working longer could prove one of the most significant social legacies of the debt crisis.
But turning their citizens’ retirement plans upside down has been politically risky for leaders in a region that has the highest concentration of seniors in the world.
Greeks took to the streets in violent protest two years ago when the cash-strapped government in Athens agreed to austerity measures, including boosting the retirement age, in return for receiving a $150 billion bailout from the IMF and other European countries. In Spain, Prime Minister José Luis Rodríguez Zapatero was voted out of office in December after he bumped the country’s retirement age from 65 to 67 earlier in the year. And in France, President Nicolas Sarkozy provoked a nationwide strike when he backed a proposal to lift the minimum retirement age from 60 to 62. He was ousted in elections in May by challenger Francois Hollande, who vowed during his campaign to roll back the measure and moved to do so shortly after he took office.
The retirement ages in even some of the euro zone’s healthiest economies have been raised. Germany and Denmark, for instance, have moved to cut back on pension costs as has Britain, the largest European economy outside the euro zone.
The issue has become so controversial in the United States that little action has been taken to address increasing retirement costs. Seniors are up in arms over proposals to revamp Social Security, and liberal advocacy groups have strenuously objected that changes would disproportionately harm the poor and minorities.
The esodati, or those of the exodus, were so named because they participated in company buyouts in the past few years arising from corporate restructurings and efforts to make room for the younger workers.
Through a temporary government fund called the cassa integrazione, many esodati had been given payouts large enough for them to live comfortably until their full benefits were triggered. For men, this usually happened at 65 but varied depending on how many years they had worked and how often they had contributed to their pensions. For women, the age was 60.
But when Monti raised the retirement age — to 68 for men and 63 for women in the private sector or 65 in the public sector — only a small fraction of esodati remained. It was only those who had handicapped children or fit other special criteria who remained covered.
Italy has historically been one of the most generous welfare states. Before the latest changes, it spent a sum equal to 25 percent of economic output on social services, and 14.1 percent of that was on pensions. That figure was the highest of any OECD country. (The United States, in comparison, spends 6 percent, just under the average figure of 7 percent.)
But with an aging population, high unemployment among young people and an economy forecast to shrink by nearly 2 percent this year, the Italian government made pension benefits among the first items it cut when it began to slash its budget. In announcing the emergency measures in December, Monti appealed to the public, saying he was seeking to save the country, and promised that all segments of society would be asked to sacrifice. The savings were estimated to exceed $109.5 billion through 2050.
There was little protest from the populace at the time. But that changed as the months went on. The economy deteriorated, and expected sacrifices by the wealthy and powerful failed to materialized. Monti was unable to impose special taxes on the rich, reduce the salaries of Parliament members and introduce property taxes on the Vatican. Resentment against the government has grown.
Thousands of esodati, who have found one another on Facebook and e-mail lists, are petitioning Parliament for a repeal of the new law. One of Italy’s major parties, the Democratic Party, has threatened to block the passage of further labor changes if the government doesn’t take steps to help the esodati.
Last month, while speaking at a forum in Bologna, Monti acknowledged the toll the changes are taking but stopped short of offering a solution.
“I am sorry for the social discontent it has created,” he said. “We have real and human problems in front of us in an inhuman economic situation.”
Andrea Cavola, 56, a former finance manager for Alitalia airline, was once solidly middle-class but said he can’t afford basic items such as new prescription lenses for his glasses. He said he is so desperate that he’d be happy to take a job gardening or waiting tables but that no one will hire him because they think he’s overqualified.
“I now understand people who have attempted suicide. When you are in this situation, your world falls apart,” Cavola said.
For many women, the jump in retirement age was more severe than for men: from 60 to 65 in the first stage, then to 67 in subsequent years. Stephania Venturi, 57, is an Internet consultant who took a buyout that will last her only two more years and is facing an 11-year gap with no work and no pension. Venturi calls the changes the “greatest attack on women in the history of Italy.”
Vincenzo Di Vita, 60, the son of a farmworker and homemaker from a poor part of northern Italy, worked as the administrator at the postal office in a town near Milan. When the reality of his new situation dawned on him, he said he immediately called his old bosses and begged for his job back.
But it was too late. They told him that his early-retirement contract could not be rescinded and that, in any case, the job had been filled.
Since then, Di Vita said that he can’t sleep at night and that his only hope is to stretch out his buyout money for three extra years. He said he had been saving to give his two sons, who are 26 and 21, money for down payments for homes. Instead, he has found himself turning to them for financial help. Di Vita said he once supported Monti. Now, he can’t wait until someone else pushes him from office.
“The government doesn’t see us as human beings,” Di Vita said. “They see us as numbers.”