Italy’s new populist government has taken power thanks to an agenda that had pension reform among its priorities. However, the programme underpinning the coalition agreement does not contain a single word about supplementary pensions. For the ruling parties, reforming pensions means allowing people to retire earlier than they currently do and cuts to high pension benefits, which on balance will mean increased spending.
Leaving aside the potential negative consequences of increased pension expenditure, one has to wonder why second pillar pensions are being left untouched. The system is growing well, as shown by figures on membership and asset growth released by COVIP last month. The foundations are strong too: the system is fully funded and pension funds have a robust regulatory framework. However, the development of the system is constrained by a number of bottlenecks.
First, workers use their statutory severance pay (Trattamento di Fine Rapporto) as contributions to pension funds. But this can be used interchangeably as DC contributions, or as a pot of savings to help during bad times. Most workers prefer to keep their TFR money close rather than in a pension fund.
Second, too many pensions funds are small and under-resourced. This means they have fewer tools to attract workers from their potential pool. They often lose new employees to banks or insurance companies, who sell them costly third-pillar pension products.
Consolidation among smaller pension funds is not only necessary, it is crucial. Pension funds need to become larger and more professional. There is a law, approved by the former government, to speed up the development of a consolidation process. But the new government does not seem at all interested in following through with the process. By doing so, it misses an opportunity and shows lack of long-term vision.
“Italian pension funds recall Italy’s political fate throughout its history, when it was divided into small states defending their turf”
Why can’t pension funds initiate a bottom-up consolidation process themselves, you may ask? In a way, Italian pension funds recall Italy’s political fate throughout its history, when it was divided into small states defending their turf.
The people at the helm of pension funds have no interest in foregoing their feeling of power, which exists as long as the organisation survives. They would do a great service to members if they renounced this isolation and consolidated. However, this is unlikely to happen without good leadership.
Carlo Svaluto Moreolo, Senior Staff Writer