Introduction
Since the second decade of the 20th century, Italy has provided its citizens with a comprehensive social security program that helps to provide needed health care benefits and funding to individuals that are too old or too disabled to remain in the workforce. Italy’s social security system shares a many similarities with other European nations, particularly with nations that are members of the European Union. As a result, an examination of Italy’s social security program would likely provide valuable insights that could be somewhat applicable to the systems in other European nations. The following pages will outline a comprehensive analysis of Italy’s social security system across twelve key areas, which include the level of expenditures, the social security payment system, changes in dependency ratios over time, the social security tax structure, social security benefits structure, retirement age and benefits eligibility, guidelines for spousal and domestic partnership benefits, unemployment insurance, health care coverage, pending and implemented social security reforms, and problems within the system.
Italian Social Security Expenditures
Social security expenditures are often one of the most profound concerns for national governments as it represents one of their largest unfunded liabilities. Further, these unfunded liabilities are virtually endless as individuals continually come in and out of the system as citizens retire, become disabled, or pass away. The increased growth in in population has also contributed to increased constraints to Italy’s social security system as a larger percentage of the nation’s GDP is devoted to social program spending. As an example, available data indicates that in 2009, social program expenditures accounted for 30% of Italy’s gross domestic product, while 28% of this spending came from public funds and a mere 2% came from private funds. This is an extraordinary amount of spending, which is evidenced by the fact that it accounts for nearly a third of the nation’s GDP. This indicates just how extensive Italy’s social security program is in supporting Italian citizens that are eligible for benefits.
Italy’s social security system is different from those in developed nations, such as the United States, in that it provides comprehensive benefits, which include retirement, health care, disability, unemployment, impoverished individuals, survivor benefits, illness and maternity leave, and workman’s compensation. In the United States, these various benefits are provided through several different social programs, yet in Italy, they are all covered under the umbrella of the nation’s social security program. Due to the complexity of the program, as well as the host of different benefits that the program covers, there are a number of different payment rates comprising the social security payment system. As such, an overview of Italy’s social security payment system is outlined in the following table.
Italian Social Security Benefits Pay Schedule
Dependency Ratio Changes Over Time
The dependency ratio of those dependent upon support from Italian social security has changed significantly in recent decades. This change involves the age of beneficiaries, which appear to be increasing. In particular, the median age of social security beneficiaries is rising. This is a trend that appears to be occurring all over the developed world and is generally attributed to the massive increase in birth rates following the end of World War II in Europe. This increased birth rate continued for several years to result in the largest generation in world history. Since then, birth rates have steadily declined, particularly in Italy where a marked rise has been found in infertility among Italian citizens. As the post-World War II generation continues to age, more and more of these individuals retire and seek out social security benefits. This has placed significant constraints on Italy’s program as more citizens are drawing benefits then are paying into the system. Further, this trend has led to the dependency ratio changing through increases in old age and retirement benefits to accommodate the nation’s aging population.
Social Security Tax Structure
The social security system in Italy is generally funded through employee and employer contributions. Importantly there are Italian citizens that are self-employed, unemployed, or earn a living in ways other than through traditional employment. For these individuals, social security benefits are available without contributions, although the amount of these benefits is extremely limited. As such, individuals that wish to have higher social security benefits if and when the need arises can provide voluntary contributions according to a percentage of their income. For Italians that work for a traditional employer, social security contributions are taken from employees through payroll deduction in the amount of 9.19% of gross earnings. Employers are also required to contribute to social security insurance on behalf of their employees in the amount of 23.81% of the organisation’s gross payroll.
Social Security Benefit Structure
Italy provides a variety of benefits through its social security system which provide its citizens with valuable support, whether financial or nonfinancial, during their time of need. The most prominent benefits provided by Italy’s social security system includes monthly payments for eligible Italians suffering from illness or on maternity leave, unemployment benefits, mobility benefits, family allowances, and most prominent, retirement and old age pensions.
Retirement Age and Benefits Eligibility
As a result of recent reforms in Italy’s social security system, the retirement age of social security beneficiaries is 66 years old for men and is expected to rise to 66 years old for women by 2018. Further, social security retirees are entitled to a monthly pension and health care benefits, while spouses and domestic partners are entitled to education benefits, and supplemental payments. A family allowance is also provided to the family of retirees in the event that the retiree becomes incapacitated. Finally, when the retiree passes away, a percentage of the retiree’s pension would transfer to the spouse or domestic partner.
Spousal/Domestic Partner Benefits
Over the past two decades, many European nations have begun to develop liberal societal beliefs regarding same sex marriage. As a result, during this time several countries in Europe have modified laws to include domestic partnerships as a legal and valid form of marriage, which provides spouses and domestic partners with equal benefits under programs such as social security. This is certainly true in Italy, which has implemented legislation to ensure domestic partnerships are included under social security benefits for married recipients or couples.
Unemployment Insurance
Unemployment insurance represents a major component of Italy’s social security benefit structure. In order to be entitled to unemployment insurance under the nation’s social security program, the recipient must have at least two years of coverage with 52 weeks of social security contributions during the last two years. Importantly, even when recipients meet this qualifying condition, the duration of these benefits is only eight months. For those receiving full unemployment benefits, the amount of the benefit equals 60% of the employee’s gross average daily wages for the first six months of unemployment and is lowered to 50% for the seventh and eighth month.
Health Care Coverage for Recipients and Dependents
Health care coverage is also a fundamental part of Italy’s social security system as beneficiaries of old age pensions, disabilities, unemployment, and work injuries are entitled to public health care services. As has been experienced within other European countries, increases in the number of social security beneficiaries due to the aging population has led to significant constraints on the availability of health care services, particularly specialty medical services such as heart surgery. The Italian government has continued to monitor the situation with the constrained public health care system and has implemented a number of initiatives to help ease the pressure. Only time will tell, however, if the nation’s efforts have been effective.
Pending and Implemented Social Security Reform
Changes in cultural and societal characteristics in recent decades, as well as the emergence of extensive technological innovations has prompted nations such as Italy to reform their social security system. The most recent reform enacted by the Italian government took place at the end of 2011 in order to introduce emergency austerity measures. The most prominent element of this reform was that effective on January 1, 2012, the new retirement age was increased to 66 years old for men within the workforce, while the retirement age form women would gradually increase to 66 by the year 2018. This reform was undertaken in an effort to reduce the constraints on Italy’s social security system by making citizens wait until they are older to be eligible for retirement benefits.
Problems and Issues
According to available research data, the most profound problem to impact the Italian social security system in recent years involves the major constraints that have emerged as a result of the nation’s aging population. A number of suggestions have been made to address this problem, including the implementation of automatic adjustments that would increase the amount of contributions taken from employers and employees, while also increasing limitations on the provision of benefits.
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