Military pensions: USMIA says, ‘From 2032, there will be cause for concern for those on a purely contribution-based scheme’. Here’s why, along with the simulations

The discussions are now moving to the institutional level. During the most recent contract renewal, commitments were made regarding the issue of occupational pensions, and a specific round of discussions involving representatives from six ministries is expected to begin by October.

“With the 2022 Stability Law,” said Maurizio Gasparri, Chair of the Senate Committee on Foreign Affairs and Defence and a senator for Forza Italia, in his speech at the conference – I, together with other colleagues, secured the inclusion of a provision for dedicated pension schemes, for which several tens of millions of euros were subsequently allocated in the following years. Whilst this is certainly not enough to resolve the problem, I have been proactive and active on this issue. “On the occasion of the contract renewal, the government undertook to set up a working group within 90 days, which must meet swiftly to address and resolve the issue of dedicated pension provision. We have reached the point where we need to finalise the allocation within the framework of the resources earmarked for defence,” concluded Gasparri.

For his part, Stefano Graziano, leader of the PD group on the Chamber of Deputies’ Defence Committee, highlighted during his speech that ‘discussions with representatives of military personnel clearly reveal a major concern: whilst the Government continues to allocate resources to investment in weapons, fundamental issues affecting the lives of our military personnel remain without adequate answers. I am thinking first and foremost of pay,’ he stated, ‘which must be commensurate with the cost of living and the specific nature of the work carried out; I am thinking of pensions, where we must finally address the specific nature of military personnel’s service in a serious and comprehensive manner; I am thinking of training, which cannot be regarded as a secondary expense, but as an investment in professionalism and security; and I am thinking, above all, of the dramatic issue of service accommodation, which directly affects thousands of service personnel and their families. A strong defence is not built solely on weapons, but by investing in people. This is where the Government needs to change its approach,’ concluded Graziano.

During the conference, a number of experts took the floor, offering some key insights into how to tackle the issue. “When we talk about the ‘retributivo’ system,” explained Alberto Zanetta, Usmia’s national secretary responsible for pay and benefits, “we are referring to the method of calculating pensions that was in place before the so-called ‘Dini reform’.” There is a watershed date: 31 December 1995. Therefore, all staff who retired before 1 January 1996 were on the so-called ‘pure earnings-related’ scheme. The ‘pure salary-based’ system amounted to a rate of 2 per cent for a maximum of 40 years’ contributions. Let me give an example,’ continued the expert, ‘: if I had been on a ‘pure earnings-related’ scheme and another person had been a colleague of mine who had joined the academy at the same time as me, regardless of the career paths we might have taken, our pension entitlements would ultimately have been identical, because, to put it very simply, the rules stipulated a maximum of 40 years’ contributions, 2 per cent, so it was 80 per cent of the final salary used for pension purposes’.

With the switch to the contribution-based system, the situation has changed. The change did not take place abruptly; a transition period was put in place. What did the transition involve? ‘It involved the creation of two categories: what we call “mixed” cases and then “purely contributory” cases,’ replied Zanetta. ‘The “mixed” cases were those who, as at 31 December 1995, were in service but had at least 18 qualifying years. ‘Now,’ the expert noted, ‘let me make a brief aside when we talk about “contributory years”, because in military service there is actual military service – the date of enlistment and the date of discharge – and then there are notional additions for a maximum of five years. So personnel who had accumulated 18 years of qualifying service were indeed under the contributory scheme, but in fact the vast majority of their pension entitlement was still calculated under the salary-based system. So – the expert continues – I call them the ‘mixed salary-based’ group. Then there are the ‘mixed contributory’ cases, and these are the ones on which we are beginning to focus our attention: namely, those personnel who were in service as at 31 December 1995 but had not completed 18 qualifying years. For this category of staff, different calculation periods have begun to apply: the salary-based system up to 31 December 1995, and the contribution-based system from 1 January 1996. Then there is a third group, the ‘pure contribution-based’ staff. Purely contributory pensioners are those who joined the service on 1 January 1996 and therefore have no ‘legacy’ element of the earnings-related scheme. Consequently, their pension is very straightforward to calculate: it simply involves taking their total contributions, multiplying them by their conversion factor, dividing by 13, and there you have it. The problem – as Zanetta emphasised – is that the amount, the actual pension payment, is significantly lower than that of those on the ‘mixed’ scheme, and I won’t even compare it with the earnings-related scheme. So – the expert concluded – this is the fundamental difference.’

“Recently,” said Salvatore Miccichè, national secretary and treasurer of USMIA Army, “we have managed to amend certain aspects of a scheme operated by the armed forces, namely the auxiliary scheme. Without the support of the auxiliary scheme – if you’ll pardon the pun – the provision would have been around 55 per cent of the final salary. In 2021 we managed to change this; we are now able to provide a little extra because personnel in that position begin to make contributions again for a period not exceeding five years, and they are awarded, upon completion of their active service – which ends when the auxiliary service ends – a conversion coefficient equal to their chronological age at the time the auxiliary pension ends. This is because the conversion coefficient is linked to chronological age. So we made an initial move by seeking to amend the auxiliary scheme, and from 2021 we have succeeded; currently – he emphasised – those on a purely contribution-based scheme will receive between 60 and 65 per cent. We are still a long way, however, from that famous 80 per cent’.

“Generally speaking, military personnel begin their working lives between the ages of 18 and 20,” the expert pointed out, “and retire on average at the age of 60. In some cases, they continue a little longer. They have contributed for around 40 to 42 years. In the civilian sector, people start making contributions – the national average is around the age of 30 – and retire at the age of 67. Paradoxically, although military personnel make higher contributions, when it comes to calculating their pension, it is significantly lower than that of civil servants or civilians because the conversion coefficient used to determine the pension is far more favourable for civil servants. ‘But military personnel do a different job from others: when there is danger, others move away from it. We, on the other hand, are called upon to rush towards the danger,’ Micciché pointed out. For the union, the countdown has begun. A solution must be found before the switch to the contribution-based system takes effect for the first large cohorts of personnel. The forthcoming budget could be a first opportunity. But the limited resources available to resources leaves little room for optimism. The Public Finance Policy Document, recently approved by the Council of Ministers and now under consideration by Parliament, forecasts a 14.7 billion increase in pension expenditure for 2027. This scenario appears to leave little scope for the parties’ proposals ahead of the 2027 Budget Bill.