Will we ever retire? As Gen Z enters the workforce, we are faced with rising occupational taxation and unstable pension plans. Life expectancy keeps climbing, but so does the age of retirement. As an older population starts to materialise, the cracks in Italy’s pension system are emerging. Our pension scheme is a clear example of institutional and administrative fragility, increasingly preventing the actual guarantee of the right to social security via pensions. A crucial drawback of this guarantee lies in the thirty-five-year-old transition from a retributive to a contributive pension system: where pensions were once funded directly through public resources, they now depend on workers' accumulated monetary contributions throughout their employment. This shift imposes a new burden on workers, who must now self-sustain their retirement instead of relying primarily on public redress. As fertility rates fall and the average age increases, the demographic sustainability of this system comes into doubt. Italy now requires a substantive working class capable of supporting itself whilst also financing those benefiting from the defunct retributive system. If the elderly population continues to expand whilst the working–age population contracts, the very concept of a pension risks becoming unattainable.
From retributive to contributive
Italy’s pension system has changed dramatically since the creation of Istituto Nazionale Previdenza Sociale (INPS) in 1943. It was originally designed as a retributive system in which the state directly supported the socio-economic life of the worker by subsidising old-age pensions. The pension salary was calculated on the basis of wages earned in the final years of employment.
This model, however, was plagued by many structural distortions — including the widespread practice of late career promotions — which meant the nation was effectively subsidising pensions based on the highest final salary. The expenses led to 1995 reform known as the Riforma Dini, which shifted Italy from a retributive to a contributive system. Under the new regime, pensions are calculated on the basis of total lifetime contributions, limiting government subsidy and transferring responsibility onto the worker.
People entering the workforce after 1996 were automatically placed into the contributive system, while those already retired or with long contribution histories were secured under the retributive regime. The remaining workers were pushed into the uncertainty of a mixed system, whose effects continue to shape current demographic issues and reforms.
Demographic pressures and pensions
This paradigm shift entails a new demographic reality. The contributive pension system is reliant on the contributions of active workers, who also finance individuals still under the retributive regime. At the same time, Italy’s statutory minimum retirement age has risen to 67 alongside increases in life expectancy and the population’s average age. An aging society, lower birthrates, and a persistent employment crisis are jeopardising the functionality of an already fragile system.
Data from the Fondazione Giuseppe di Vittorio (FDV), based on ISTAT projections, illustrate the scale of this pressure:
The average age of the population is expected to rise from 46.2 years in 2022 to approximately 50 years by 2042, while the working population (15-64) is expected to decrease from 37.5 million to 30.7 million. Over the same period, the non-working population is expected to increase by 3.8 million people, further straining the contributive balance.
Why reform has fallen short
The Italian government has repeatedly attempted to redress the fragility of the pension, yet these interventions prove insufficient. The Legge Fornero reform, introduced within the broader Salva Italia framework, formed part of a wider effort to reduce public expenditure and stabilise public income in response to economic instability. The reform reaffirmed the shift toward a contributive model and linked retirement age to life expectancy, aiming to stabilise public finances and ensure economic stability.
The Legge Fornero nonetheless left significant doubt and uncertainty amongst Italians because the contributive system continues to operate alongside retributive and vague mixed arrangements. Even though contributions should function in a circular manner, where current contributions finance retirees, this mechanism is no longer straightforward. The weight of retributive pensions, combined with a vague mixed system and a strict contributive system, materially means that fragmentation and legal uncertainty continue to govern pension schemes.
Pension expenditure remains a major issue within the public Italian sphere, representing a substantive haemorrhage on the state's coffers. Simultaneous public unrest persists, particularly as rising retirement ages fuel concerns that pensions will be deferred. Combined with political instability and frequent government turnover, this has resulted in constant pension reform, where the system is being repeatedly amended through short-term measures.
Uniform rules across generations would help solve this. Universal benefits would create a more coherent and legally certain system. This would entail a more substantial and complete pension reform, but would be both risky and politically improbable. Beneficiaries would likely react in strong opposition and a complete overhaul would be a complicated procedure. However, such reform could go to support other structural objectives, like framing pensions closer to labour market policy increasing the factors considered such as unemployment, vocational training, and education. This approach could further allow for a more flexible retirement age range with diverse requirements for eligibility. It would also make reforms more entrenched through independent supervisory bodies, limiting populist short-term schemes that fail to address long-term issues.
Another recurring question concerns the limits of a fully public pension system. Diversifying risk through private occupational pension funds could reduce the financial burden on the state. However, as the OECD reports, Italy already records the highest average mandatory contribution rates amongst OECD countries, amounting to 33 per cent of the average wage in 2024. In this context, diversification could still be an option — especially if accompanied by renewed governance through trade unions and employers. This would draw on the negotiated frameworks that characterised the 1990s, according to Lucio Baccaro, Italian political economist. Reforms like this could allow for a more gradual adjustment in retirement age by using demographic trends to define contribution ratios. This would construct a legally certain system which would not crumble and shift as the crisis worsens and maintain uniformity with European standards and making decisions through the lens of Regulation 883/2004/EC.
The fragility and confusion ushered in by the Riforma Dini and the Legge Fornero does not entail an erroneous shift from contributive to retributive, but rather demonstrate that economic availability is an indispensable aspect for the functioning of pension schemes. The current system increasingly burdens generations subject to the contributive regime, while previous generations continue to benefit from the more generous retributive and mixed arrangements. This element of intergenerational imbalance is further compounded by Italy’s demographic trajectory and reliance on short-term, politically expedient reforms. The economic and practical challenges of a system overhaul are evident. The availability of one should be more apparent. Otherwise, the question remains unresolved: will we ever retire?
