After months of fierce wrangling and under the threat of a general strike, Italy's cabinet approved pension reforms today which it said would save up to €13 billion a year from 2012.
Labour Minister Roberto Maroni said that under the plan, from 2008 workers would not be able to retire until they had made at least 40 years of contributions, or had reached the minimum retirement age of 65 for men and 60 for women.
At the moment, Italians with so-called "anzianita" pensions can retire at 57 as long as they have paid into the social security system for 35 years.
Prime Minister Silvio Berlusconi hopes he has found the thin line between keeping coalition members happy and appeasing the European Union, which has long called on Rome to carry out structural reforms to cut its deficit and debt more efficiently.
Economy Minister Giulio Tremonti said the pensions plan would be presented to the EU next Tuesday.
Pensions swallow about 15 per cent of Italian gross domestic product and the proportion is only likely to grow as low birth rates and longer life expectancy age the country's population.
Despite the changes, economists have labelled the reforms as weak, saying Mr Berlusconi, conscious of stiff union opposition and the fact his first government collapsed over pensions in 1994, is using carrots rather than sticks.