Should we retire earlier in order to look after our parents? The role of immigrants
In OECD countries, generous pension policy schemes, particularly those which existed during the 1980s and early 1990s, have been advocated as being responsible for the early retirement of workers from the labour force. Italy stands out among the OECD countries as having the highest pension deficit: in 2008, it was 14.1% of GDP compared to the OECD average of 7%, and increased by 23% over the period 1995-2005 (OECD). The Italian pension system is designed on a pay-as-you-go (PAYG) basis; older workers still receive their pensions under the defined benefit (DB) scheme, whereas the shift to the notional defined contribution (NDC) scheme will affect younger generations.
The structure of this pension system gives little incentive to work for longer, as pension benefits are weakly related to the worker's contribution history. Older workers might be induced to take early retirement, as the difference between their salary and their pension is not enough to justify remaining in work. The disincentive to work into old age is exacerbating the financial burden on the pension debt, due to the ageing population. Italy is one of the oldest populations among the OECD countries, second only to Japan, with people aged 65 representing 33% of the working-age population, compared to an average of 23.6% for the OECD countries (OECD, 2010). Figure 1 plots the old age dependency ratio, which reached 31% in 2010 following a steady upward trend. This pattern has been fostered by a constant low total fertility rate (Boeri et al., 2005), which was between 1.25 and 1.41 over the period 2001-2010 (ISTAT).