The many reforms that in recent years have changed the national welfare system are deeply affecting the way new pensions are determined. Retirement pensions, especially for state employees, are currently very much eroded, and future pensions based on a maximum of contributions will only reach 60-65% of a worker’s last wage packet.
In the past, hospital doctors with 40 years of contributions would retire with a pension fully equal to their last salary, and would actually receive more than their last salary because there would be no deductions for contributions.

Now, workers desiring economic security in their old age will have to create their own moneybox to guarantee an income that can provide decorous conditions for their retirement years - we use our pension when we grow old, but it’s when we’re young that we put it together. For a better view of the problems involved we must have a clear idea of how the welfare system works.

To begin with, let’s see exactly what we mean by “pension”. A pension is a periodic and lifelong payment of money made to whoever has attained a right to it through a previous period of service or employment; in other words, it is the instrument that guarantees an income after retirement.

Another idea must equally be made clear: a pension is not a state-bestowed gratuity, but an insurance service, characterised by a mutualist nature, that workers pay for during their active working period through real-value contributions. It is a reimbursement made by social security institutions for the portions of earnings that were previously subtracted from workers’ monthly wages. And how does social security work? Welfare can be based on two different systems: capitalisation (current contributions are used to build up funds that will pay for future pensions), or distribution (current contributions are used to pay for current pensions.)

The capitalisation method has proved itself preferable to the distribution method for the following reasons:
- Pensions are partially funded by the returns on capital, thereby reducing contributions (this is true, of course, if, as usually happens, returns on long-term investments are higher than the national income growth rate).
- With the distribution method, the funding of fixed benefits calls for higher contributions in times of slackened income dynamics, as is the case when population growth rates decline, and this results in heightened risks of insolvency or cash deficits.
- Under the capitalisation system, each individual’s benefits are paid for by the capital raised by the individual himself and not by the contributions made by active workers.
- The capitalisation system prevents conflicts between generations, because current contributions are not used to finance current pensions, with the legitimate hope of receiving the same kind of treatment from future generations.

Capitalisation welfare management must obviously avoid the wasting of funds through inappropriate investments in order not to be forced to fall back on the distribution system, where the payments of current pension becomes a cost – a sound management is requisite. For a correct management of the distribution system it is necessary to determine, within every generation’s average values, the proper criteria of equity (establishing identical proportions between amounts paid and received by each generation), of financial sustainability (revenues must cover expenditures) and of contractual equilibrium (guaranteeing future renewals of the contract).

There are two methods for determining of the amount of a pension: - Distributive method
– calculation is based on the final wage, the last wages or all the wages.
-Contributive method
– calculation is based on the contributions made during part of or all of the working period.
Let us now take a look at how social security system for doctors is organised. The Cassa Pensione Sanitari (CPS, medical pension fund), currently absorbed by the state institution INPDAP, was based on a balanced capitalisation system, meaning that contributions and returns on capital were used for paying the pensions, and the total amount (specifically the capital) would be extinguished after a certain number of years (i.e. life expectancy), in order to avoid that at the death of the recipient or of any heirs entitled to survivorship pensions, the capital should end up being wholly absorbed into the welfare institution’s cash fund, resulting in an unjust enrichment on its part.
Having said that, if we look at the organisation of our welfare institutions we can clearly see that they are built with a solid structure. So then why the red alert for hospital doctors’ pensions? Sizeable pensions are currently being undermined because of the late retirement age and because of restrictive reforms such as the following:
- Reduction of yield rates to 2 percent.
- Freezing of the IIS and its incorporation into the pension.
- Pensions determined on the basis of the last working years instead of on the last wage packet.
- Increasingly restrictive ceilings, while contributions are still based on the entire salary and are even increased for amounts that pass the ceilings.
- Survivorship pensions linked to surviving spouse’s income.
Above all, other funds are using the CPS as if it were an emergency fund; it is still prosperous, but its capital will inevitably begin to dwindle with the continuous withdrawing.
Hospital doctors have low break-even rates, but they are not being capitalised for the pensions of those who will retire in the coming years – in fact they are used to balance other pension funds. Property divestments too are having damaging effects on our fund, because divested property benefits other funds and, under last year’s finance bill, a unified financial administration cannot single out – not even as a loan – the CPS money that is being diverted to balance other funds.
Thriving as it is, the CPS fund is in a critical situation: that, and the reduction in actual pension rates should move hospital doctors to some serious thinking and convince them that it’s time to make a stand in defence of their money and old age.

State-employed doctors’ pensions, currently in balanced capitalisation, might pass under the perverse distribution system, with all the negative consequences that it carries, especially when in a few years there will be a surge of retiring hospital doctors and a simultaneous decrease in new doctors seeking hospital employment, because of current health policies tending to cut the number of hospitals and hospital beds. And, while hospital doctors continue to snooze without realizing the danger of their pensions being cut down, the INPDAP continues to balances its losses by drawing from CPS resources, instead of saving them for future pensions.
(translated by Interpres)