Pension Age to Rise in Italy and Germany

The Italian and German governments risked a public outcry yesterday by proposing that people should work, and make pension contributions, for up to five years longer to help pay for their ever-growing number of pensioners.

The proposals come as countries across Europe struggle to defuse the "demographic timebomb" of falling birthrates and rising life expectancy.

The Italian prime minister, Silvio Berlusconi, said Italians should retire at 62, five years later than the average.

Under the current system, he said, Italy began each year with a €36bn (£25bn) pension deficit.

"In Italy people retire on average at 57. It means unsustainable costs and an annoying loss of talent, which could end up sinking us," he told the rightwing newspaper Libero. He proposed that the retirement age should be gradually raised to 60 by 2010, and after that to 62.

The welfare minister, Roberto Maroni, tried to sweeten the pill yesterday by suggesting that rather than being forced to keep working, Italians should be enticed with a 30% cut in pension contributions over the last five years.

But the idea has not gone down well. Savino Pezzotta, secretary general of the Italian Confederation of Workers' Trade Unions, said: "If they tear apart our pensions system, we'll fight them."

And Mr Berlusconi's rightwing coalition allies Gianfranco Fini and Umberto Bossi have expressed concern about the plan.

In Germany a government commission has recommended raising the average retirement age to 67 and increasing pension contributions by 2.5%. It also suggested that no one should be allowed to retire before the age of 64.

Italy and Germany are under growing pressure to overhaul their pensions systems in an effort to meet EU budget deficit regulations.

Both had more deaths than births in 2002, and their national workforces are unable to pay for the growing numbers of pensioners. Italy has one of the oldest populations in the world, together with Greece and Japan, and one of the lowest birthrates, second only to Spain's.

Pensions cost Italy about 15% of its GDP and have been a growing strain on the struggling economy for the past decade.

But when Mr Berlusconi last tried to talk Italians into working longer - during his fleeting first government in 1994 - it was met by a million protesters on the streets, and it contributed to the collapse of his coalition government after less than eight months.

The German recommendations put further pressure on the government, implying that its attempt to reform the pension scheme in 2001 has been a flop.

But having watched France being brought to a halt by huge strikes against similar pension reform proposals earlier this year, German politicians are wary.

Both the Social Democrat government party and conservative Christian Democrats opposition have criticised the commission's proposals, without offering alternatives.

Germany's problem is exacerbated by the fact that school hours are so short that mothers are forced to stay at home rather than work. German children spend four and half hours a day at school.

Last year, Chancellor Gerhard Schröder introduced a five-year, €4bn package to fund all-day schools, as well as providing money for creches and tax breaks for young parents, but it has yet to have any impact.

The dwindling number of children has led schools to cut the number of classes, and some will be closed because of the lack of pupils.

The Italian welfare undersecretary, Grazia Sestini, suggested in an interview with the newspaper La Repubblica yesterday that Italians must be encouraged to make more babies as well as work longer.

On top of an €800 "baby bonus" for every newborn child, she said, the state should follow France and offer child benefits of €140 a month for the first three years.