Pension expenditure in 2027: an increase of 14.7 billion to account for inflation. What might change

When it comes to the pensions section of the 2027 Budget Bill, the options are limited. The Public Finance Policy Document appears to leave little room for manoeuvre, given that pension expenditure is forecast to rise by 4.2 per cent as a result of pensions being indexed to the changes observed in the previous year in the consumer price index for blue-collar and white-collar households (Foi), excluding tobacco. The 2027 accounts are projected to show an increase of almost 15 billion (14.7 billion to be precise), rising from 351.8 billion in 2026 to 366.5 billion in 2027.

In November, a decree issued by the Ministry of Economy and Finance, in consultation with the Ministry of Labour, will set out the provisional pension adjustment rate for 2027; the current mechanism, based on income brackets for 2026, fully reflects the change in the FOI index up to four times the INPS minimum pension; at 90 per cent for the portion between four and five times the minimum; and at 75 per cent for the portion exceeding five times the minimum. As a result of applying the current tiered mechanism, the vast majority of pensions are subject to a full revaluation. The revaluation applied from 1 January 2027 will therefore be determined on the basis of information available in November regarding the actual and projected trend of the FOI index (excluding tobacco) up to the end of the year; any discrepancies compared with the variation subsequently ascertained by Istat in the final figures will be settled through an adjustment at the time of the following year’s revaluation.

The ratio of pension expenditure to GDP, according to the tables in the Dpfp, is set to rise from 15.1 per cent in 2026 to 15.3 per cent in 2027. Pensions account for the ‘lion’s share’ of social benefits, the growth of which ‘will peak in 2027 (3.6 per cent), partly due to the indexation of pensions’ to the changes observed in the previous year in the FOI index (excluding tobacco). According to the DPFP, expenditure on social benefits is forecast to rise from 471 billion to 488.1 billion. The share of social benefits as a whole is projected to rise from 20.3 per cent in 2026 to 20.4 per cent in 2027.

In light of these forecasts, government officials are also considering whether to confirm or not the current tiered revaluation mechanism. From 2025, the tiered mechanism has been reinstated, meaning that those who exceed a threshold do not lose the full revaluation on the lower portion of their pension. Among the options being considered by government advisers and the State General Accounting Office is a return to the mechanism set out in the 2023 Budget Law: unlike the band-based mechanism, under which the reduction in indexation applied only to the portion exceeding each threshold, a block-based indexation method was adopted for the two-year period 2023–2024, applied to the entire pension payment, which was less favourable to pensioners and resulted in a reduction in pension expenditure of 2.1 billion (2023) and nearly 4.1 billion in 2024, net of tax effects. The matter remains under consideration.

Still on the subject of pensions, the 2027 budget will also include a provision for the severance pay of public sector employees. The Constitutional Court has reiterated that the system which obliges civil servants to wait up to 12 or 24 months (whilst receiving their severance pay in instalments) is contrary to Article 36 of the Constitution, as it constitutes a form of deferred remuneration that must be paid within a reasonable timeframe. The matter is expected to be discussed in mid-January 2027, which is why government officials examining the dossier are considering a provision in the 2027 Budget in the region of 600 million euros to gradually phase out the system that has been the subject of the Constitutional Court’s findings.