By Francesca Piscioneri
ROME (Reuters) - Italy will set aside 6 billion euros ($6.73 billion) over the next three years to increase pensions and allow people to retire earlier, the welfare minister said on Wednesday, rowing back on a pension reform passed in 2012.
The announcement comes as Prime Minister Matteo Renzi struggles to boost his popularity ahead of a December referendum on constitutional reform on which he has staked his career.
Former prime minister Mario Monti sharply hiked the retirement age when Italy was in the front line of the euro zone debt crisis in 2012, a move that helped calm markets but was deeply unpopular with Italians.
Welfare Minister Giuliano Poletti said after meeting trade unions that the 6 billion euros would boost the pensions of retired people currently receiving less than 1,000 euros per month and allow certain types of workers to retire earlier.
Poletti said details of the operation, which will cost less than 2 billion euros in 2017, would be provided in the 2017 budget to be presented by Oct. 20.
Italy spends more public money on pensions than any other EU country, around 16 percent of its gross domestic product.
Earlier this year Renzi announced a scheme allowing workers to retire at 63 instead of 67, but the plan got an icy reception because the pensions taken earlier would have to be funded by bank loans to be paid back with interest.
However, on Wednesday Poletti said people with particularly tiring jobs, as well as the unemployed and those on low incomes would be allowed to retire at 63 without having to pay back any money. He gave no details on the jobs to be defined as "tiring."
He also said those who had begun work under the age of 18 and worked for at least 41 years would be able to retire regardless of their age, lowering this threshold from 43.
Unions welcomed the 6 billion euros pledge and said negotiations were ongoing and progressing well.
Susanna Camusso, leader of CGIL, Italy's largest trade union, said it was finally being recognized that age should not be the only criterion for being able to draw a state pension and "how tiring a job is" was also being taken into account.
Around half of the CGIL's roughly 6 million members are pensioners.
The government on Tuesday sharply hiked its 2017 budget deficit target for the second time in five months, and said public debt would not fall this year as previously promised.
Italy's debt, at more than 132 percent of GDP, is the highest in the euro zone after Greece's.
Renzi, whose popularity has fallen over the last year, has promised to resign if he loses a Dec. 4 referendum on his plan to reduce the role of the Senate and local authorities. Most polls suggest the reform is likely to be rejected..
(Writing by Gavin Jones; Editing by Robin Pomeroy)