Italy Pledged to Raise Retirement Ages

Italy will raise its retirement age faster than other European countries and plans to cut 300,000 public-sector jobs by 2014, according to a letter the government sent Saturday to the European Commission.

The letter, seen by The Wall Street Journal, also explains plans to make the labor market more efficient, and clarifies that spending-review processes—strongly sought by European Central Bank President Mario Draghi—already have been set up in major ministries.

Departing Economy Minister Giulio Tremonti sent the letter in response to queries from Brussels about how Italy would enact its prior pledges, and contains a slew of new measures included in the 2012 budget, which was hastily approved by Parliament on Saturday and is now law.

It remains uncertain what the country's economic reform plans will be, however, because Italy will soon have a new government headed by Mario Monti, once Europe's top antitrust regulator. Mr. Monti has said he intends to move quickly, so positive measures already approved likely will be implemented.

Regarding pensions, the letter states the current retirement age for men of 65 years will bet extended to include women, but only in the public sector, next year. For females, the age will rise steadily for women from the current 60 years in the private sector to 65, and eventually higher, the letter says.

It also notes that Italy has introduced a "windows mechanism" that delays the receipt of pension benefits for 12 to 18 months after retirement, and include provisions to extend that if needed in the future.

As a result, the retirement ages for men and women in Italy are on course to be higher in 2013 than those of Germany—66 years and three months compared to 65 years and two months, respectively. By 2046, Italy's statutory retirement age will be 69 years, 7 months—19 months higher than the U.K.'s, the letter said.

The letter also said measures adopted over the past three years will lead to 300,000 fewer public-sector employees by 2014. Further measures boosting the ability to reallocate remaining civil servants were included in the 2012 budget.

Italy also has passed new rules capping at 8%—and decreasing over time—the amount of local administrations' budgets that can be spent on interest payments on debt.

The letter also outlined plans in the 2012 budget to cut payroll taxes for three years for smaller companies that take on new hires through 2016, and to boost payroll taxes for those who overuse flexible contracts.

It reiterated that the government "is prepared to intervene on dismissal rules" after consulting with labor unions and employer lobbies. The plan is to facilitate the use of severance payments in lieu of current rules that ban firing altogether. Some rules on dismissal already have been derogated to company-level contracts as the result of an August law, although both unions and employee lobbies have rushed to promise they won't apply that reform.

All labor law reforms "on dismissals should be made in order to increase companies' propensity to hire," the Italian letter said.

The ministry also said in the letter that spending reviews were set up in 13 ministries early in the year.


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