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Italian regulator questions merit of pension fund competition bill

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The Italian pension regulator, Covip, has expressed strong doubts on the draft competition bill that sanctions full portability of pension savings.

The bill allows employees to transfer their savings, as well as their employers’ contributions, from labour contract-based pension funds to for-profit pension vehicles, which carry higher costs for members.

In a parliamentary hearing, Covip chairman Francesco Massicci said: “It is not clear, however, how these contingent shifts of members correspond to a real advantage for members themselves.”

Massicci said Covip figures showed there was an inverse relationship between costs and assets under management (AUM) at labour contract-based pension funds, or fondi negoziali.

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He said the same could not be said for pension vehicles sponsored by insurance companies and banks, including individual pension schemes, or “Piani Individuali Pensionistici” (PIPs), where costs do not decrease as AUM increases.

Massicci quoted Covip figures showing that, if contributing to a labour contract-based pension fund for 35 years earns a monthly benefit of €5,000, contributing the same amount to a pension vehicle sponsored by a for-profit entity would earn as little as €3,900 a month over the same period.

Despite the higher costs, membership of pension funds sponsored by for-profit entities has increased faster than lower-cost vehicles.

At the end of 2014, PIPs had 2.9m members, accounting for 44% of all second-pillar pension fund members.

Open pension funds, sponsored by insurance companies and banks, had 1m members, whereas labour contract-based pension funds had 2.55m members in total.

The total membership figure for 2014 was 6.56m, which corresponds to around 30% of those in employment.

Massicci told the Italian Parliament’s lower house, the Chamber of Deputies, that such growth of membership at higher-cost pension funds was due to their sponsors’ large distribution networks.

He said: “Their growth was driven by more commercial placement methods, thanks to widespread sales networks that are remunerated on the basis of the number of products placed.”

The Covip chairman added that the higher costs were linked to the presence of these sales networks.

Employee and employer associations, as well as bodies representing not-for-profit pension funds, have voiced concerns over the draft bill.

Manfredo Carfagnini, chairman at the pension fund for employees of BNL BNP Paribas, said the fund strongly opposed the measure.

“Introducing competition in this way seems to respond to the interests of a lobby rather than the whole sector,” he said.

“The risk is that one part of the market cannibalises the rest.”

He also believes the measure would be of no advantage to employees, given that PIPs are significantly more expensive.

“A paritarian institution such as ours can offer very sophisticated asset management at a very low cost,” he said. 

Carfagnini acknowledged that, being a closed pension fund with 99% coverage of the sponsor’s workforce, his fund could in theory face negative membership growth, if other entities were allowed to take on employee and employer contributions currently directed to the BNL BNP Paribas pension fund.  

However, he said that – at the moment, only theoretically – the fund’s sponsor would be open to the idea of using its own network of advisers if there was full portability, and his fund were also allowed to take up members from other companies.

During Covip’s hearing, Massicci announced that the regulator was about to announce new measures on transparency, aimed at making member information more detailed and targeted at specific funds.

For more on pension competition in the country, see this month’s Pensions in Italy report

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