Recent pension reforms in many countries, including Italy, have adopted annuity conversion factors that link key pension parameters to average life expectancy, in line with the principle of actuarial fairness. However, when life expectancy systematically differs across socioeconomic groups, relying on uniform factors can lead to perverse redistribution—transferring resources from individuals with shorter lives (typically lower-income) to those with longer lives (typically higher-income). Using rich administrative microdata from a representative sample of private-sector employees in Italy, we quantify the extent of this perverse redistribution by comparing pension wealth distributions under uniform versus differentiated (heterogeneous) annuity factors. We focus on cohorts born between 1960 to 1971 who retire with an old-age or seniority pension between 2021 to 2038. Results show that redistribution is both perverse (from poor to rich) and increasing over time. This trend is driven primarily by widening income-related longevity gaps and further reinforced by Italy’s ongoing transition from a defined benefit to a notional defined contribution scheme.
