Critical issues of public pension system: the Italian case

This chapter addresses the issue of the financial sustainability of public PAYG pension schemes. Criticalities and, in particular, demographic risks affecting those schemes have been analysed. A possible solution to reduce demographic risk impact is presented, that is the introduction of a funded component to balance the PAYG part when the ratio of contributors-pensioners is decreasing. A cost-benefit analysis is presented in order to verify how the sustainability of a public pension scheme improves, given the actual and future demographic trends, and to quantify the cost in terms of public debt. Finally, an application to Italian pension data is performed.