Anticipating the changes in the Italian pensions system, the €25bn Dutch pension provider Cordares is gearing itself up to take advantage of the growing opportunities. Joep Schouten is enthusiastic about the foreign venture his company is about to embark on.

"Our main challenge at the moment," he says, "is to win the trust of the decision-makers within the Italian pensions sector. We would like to show them that we have a proper alternative to what is available on their national market, and offer them our knowledge and skills. And since the Italians have shown faith in the Dutch and our pensions system, I am confident that we will succeed."

Cordares laid the foundation for its Italian venture during a large conference on pensions innovation in Florence in October last year. The event was attended by the key figures of the Italian pensions sector, Schouten says.

"The conclusion was that the Dutch system, as well as the Swedish set-up, would be the ideal model for Italy. That is a very good basis. An additional survey indicated that more options and competition in the second pillar are considered as the most urgent themes for innovation."

Cordares is focusing on the Trattamento di Fine Rapporto (TFR) in the capital funded second pillar. The TFR are the savings - by the employer - that are paid to the employee in case of a job-change or retirement. So far, the company has managed the saved assets. But, under the new rules that take effect on 1 July, the TFR will be automatically paid into a pension scheme, unless the worker explicitly indicates another destination for the assets.

If an employee does not make a choice, his company will invest the future TFR in a scheme of its choosing. A company without its own pension fund will put the saved assets in its workers' preferred scheme. If there is insufficient clarity on this, the future TFR funds will be placed with the government's pension scheme.

In the default situation, the TFR will be invested in low-risk portfolios. In this scenario, the participants will get two guarantees: a formal one on the nominal sum, and a market guarantee of an inflation rate of 0.75% plus 1.5%. Any pension fund must offer returns that are at least comparable to these TFR yields.

Because the TFR of employees who started work after 1993 is almost 7% of the annual salary (the percentage for older workers is 2.4%), Cordares expects a large influx of TFR. "The initial amount is being estimated at €13bn a year, on a total of second pillar assets of €45bn," Schouten says.

He believes the potential for growth is huge. "While in Holland 90% of the working population participates in a second pillar scheme, in Italy it is not more than 10%."

In its preparations, Cordares has been guided by a number of surveys, which have shown that most workers are unable to make sound decisions on investing their pension savings. "Being the experts, we would like to take over this responsibility from them," Schouten says.

"We will offer individuals as well as collectives a package, based on the principle that the older the participant, the less risky the investments will be."

Cordares' investment strategy is based on the lifecycle principle, says Schouten. "We will choose the best risk-return ratio, during the full duration of the account. At the start of the investment period, we accept a larger risk. The nearer we get to the retirement date, the more we will invest in fixed income. On the other hand, people who want their money invested without risk, can make their deposit into a guarantee account This options allows their capital to grow safely, but only with modest returns."


ordares' product for the Italian market has yet to be named but will be based on the Open Pension Fund for self-employed, that has recently been launched in Holland. Cordares describes the scheme as "defined risk". It considers it as an additional category, on a par to defined contribution and defined benefit schemes.

"Because the support of the pensions sector is important, we will present our solution during executive lunches," says Schouten. "We need to know the sector's opinion, and like to discuss solutions for possible problems. Simultaneously, we will research the legislative and fiscal aspects, such as the tax-deductibility of the contributions, of our scheme."

In the meantime, Cordares has set up an Italian website. "But to further increase our effectiveness, we are also considering opening an office in Italy," Schouten say. He expects that a decision on such a regional base will be taken later this year.

Schouten says he is not afraid of competition by Italian pension funds, who have hurried to issue mandates for ‘guaranteed options' for their multicomparto systems. "How guaranteed is guaranteed?" he asks.

"I'm sure our potential participants perfectly understand that the only thing that really matters is how much they will receive when they retire. We just need to make our risk-return approach clear, the advantages of pooling resources and show them our expertise on IT support."

"Our €25bn of assets under management provides us with extra clout," he says. "It proves that we can handle business of this magnitude. We have been doing this for 55 years after all."

In Schouten's opinion, these key elements will allow Cordares to transform the prospects for external asset managers in Italy. So far, they have faced unprofitable business, with Italian asset managers - supported by banking groups - undercutting foreign competitors.

"There is a culture of protecting each other in Italy," he acknowledges. "But keeping out the competition doesn't benefit the economy. And the question, how long is this attitude going to last? Because our shareholders are not up for maximum profit, we can work cheaper than our competitors in Italy. The costs of our product are, for example, merely 1.2%."

Apart from selling its pension product, Cordares plans to offer Italian pension funds its services as well. "We have already noticed a large potential for asset liability management," Schouten says. "But I am sure there are also contracts to be won on asset management and corporate governance. Asset pooling, tailor-made if needed, is another option."

Cordares aims to complete the introduction of its defined risk product in the course of this year.