By Giuseppe Fonte and Gavin Jones
ROME (Reuters) - Italy is working on a reform to make it easier for workers to retire early without bloating what is already Europe's second highest pensions bill, as rising borrowing costs fuel concerns over the country's mammoth public debt.
Mario Draghi's government wants to inject more flexibility into the system, officials said, while avoiding the fate of an unpopular 2011 reform which sharply raised the retirement age but was suspended in 2018 after a backlash.
A temporary replacement expires at the end of the year, and finding a permanent fix has been given added urgency as a period of low borrowing costs for Italy looks to be ending.
Draghi aims to clinch a deal with national unions over the reform by the end of March, with a key meeting between top ministers and the unions due next week. He will also need to get the backing of his multi-party coalition, meaning the former European Central Bank chief has tough negotiating ahead.
Labour Minister Andrea Orlando told Reuters the reform would not be one-size-fits-all.
"It will take account of different life expectancies, of the situation of domestic workers and women, and the fact that working lives are often not continuous," he said.
With one of the world's oldest populations, Italy spends more than any other European country on pensions except Greece, Eurostat data shows. According to the Treasury, Rome's pension bill reached a record 17% of national output in 2020.
The new reform will be the seventh pensions overhaul in recent decades as Rome has tried to grapple with the economic effects of its steadily ageing population.
The high pensions outlay crimps the resources available for more productive expenditure on things like schools and infrastructure investments, and makes it hard to reduce a public debt of around 150% of gross domestic product.
RISING BOND YIELDS
The debt, proportionally the second largest in the euro zone, is gradually becoming harder to service. Yields on Italy's 10-year government bonds have spiked to almost 2%, from below 1% two months ago, due to the prospect of the European Central Bank ending its asset purchases and raising interest rates.
In essence, people wishing to retire early will be able to do so on the understanding that their pensions are limited by the amount they have paid into the system, the officials said.
This approach has the backing of the unions. What will be harder to agree is how much pensions will be reduced for those who get to leave work early.
Rome plans to expand mechanisms already in place which allow the unemployed, the disabled, carers and people with "strenuous" jobs to get an early pension. This is something the unions have called for.
Roberto Ghiselli, a national coordinator of the country's main union, the CGIL, praised the decision to explore ways to allow early retirement, but said Rome should also set aside enough resources to ensure pensioners have an adequate income.
The Treasury, which has targeted a steep fall in borrowing this year, has a difficult circle to square. It is opposing pressure from coalition parties to hike the deficit, meaning any extra pension outlay must be offset with taxes or spending cuts.
A 2018 scheme, known as "quota 100", allowed people to draw a pension at age 62 if they had paid in 38 years of contributions - the sum of the two figures giving the "100" of the scheme's name.
After fraught negotiations in the autumn triggered a one-day national strike by the CGIL, Draghi introduced "quota 102", raising the minimum retirement age by two years to 64, but for this year alone.
The CGIL's Ghiselli said the government had rejected the unions' proposal to allow people to draw a pension after 41 years of contributions regardless of their age.