A Bleak Future?

What awaits for us in the midst of the future? How current choices are going to impact on our future existance? Public pensions has been for a long time now a solid foundation for Italian families. Pensions allowed parents to keep their sons and daughter with them, helping them to have a roof and warm meals while occasionally earning 1000€ per month. Basically elderly pensions balanced precarious and occasional work, unemployment and dramatically high house prices.
There’s no way for a young couple to start a life together in any of the Northern Italy cities with such poor wages, with the ghost of sudden unemployment and such high apartment rents, not to talk about buying one.
(Well not that a young couple could start a life together if they live with their parents, neither… that could be part of the reasons for Italy has such a low natality rate).
Unfortunately the Italian pension system is lame.
Rather than implementing a system where everyone put aside a bit of money that are wisely invested and then given back as a life annuity after worker retirement, politicians and unions decided a long ago an inter-generation agreement. Under this agreement the current generation of workers pays the pensions of the current generation of retired. Brilliant? Maybe until the money set aside for pensions of the current work class is enough to pay for the current pension expense.
What is going wrong is that Italians make less and less babies and tend to survive (despite of the public health care) longer. So the agreement between generations is broken, the promise that we workers are going to receive the same treatment we are providing to our elders is void.
According to current law, when the time will come to retire I’ll have an annuity of about 40% of the average salary of the past 5 years. Not enough to survive unless I’m starting a extra bright career right now.
Although this trend is clear from about 15 years ago, only now drastic decisions have been taken. Workers money (the so called TFR a form a delayed salary awarded when leaving the job) have been confiscated leaving little or no choice to the former owners. Well, it isn’t completely true, you can leave everything as is, but you are on the verge of a cliff. The idea is to force most of the workers to move that money into complementary contributive pension funds. And when in a fund this money is no longer completely yours. You cannot move in another kind of investment or get them back to the former delayed salary form. Moreover you get no real warranty. If you chose for a conservative fund line you are granted that you will have back your money, no interest. Given the current inflation levels, that means that you could lose 2.5% of purchasing value of your money per year. The delayed salary is bound by law to produce an interest of 1,5% + 0,75 * inflation.
All this funds are privately held and what you get is an eased fiscal drag on the earnings, a bit more convenient than the TFR (19% against 23%).
The worst nightmare is not only having a ludicrous public pension, but losing every bit of the TFR money thanks to financial market volatility and irresponsible fund choices.
We have time up to the end of the month to decide what to do with our money, what is sure is that there will be lot of problems (the social kind) when the time will come for us to retire – precarious workers won’t have any pension at all, excessively conservative people won’t do any complementary form and will have just the TFR to add to the 40% of the last salaries, a number of funds will have problems (Cirio, Parmalat, Enron and 09/11 don’t ring any bell?) returning little or no money.
But there is a loop, the only way to provide a better future is to increase current wages so that everyone could save for retirement to achieve at least a decent life. Traditional manufacturing is in a difficult position with emerging country economies that allow for extremely low work costs. We have to do like the rest of Europe and follow the advanced services and technologies direction, we have to focus on industries where the cost of work is negligible respect to the cost of delivered good or service. And to do this we need both public investments in Research, in Universities, we need easier way to start business activities and to attract foreign investments in the advanced industries.
Are we hopeless?

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