Italian regulator urges mergers
The new head of Italy’s pensions regulator has made it clear that a consolidation of pension funds is necessary for the future of the industry.
Antonio Finocchiaro, who took up the post of president of Covip in January, was quoted by local business newspaper Il Sole 24 Ore as saying that ‘closed’ pension schemes, created through agreements between companies and trade unions, should actively seek merger opportunities to benefit from scale and reduce costs. He stressed that the country lacked enough pensions experts and so schemes had to constantly outsource competencies. He added that the regulator’s duty is not only to bark, “but sometimes also to bite”.
The process is already under way between the three main funds in the air transport sector, which began exploring a merger after the collapse of Italy’s flagship carrier Alitalia last summer. Pilots’ scheme Previvolo, ground personnel scheme Prevaer and cabin personnel fund Fondav are discussing the creation of a single scheme for the Italian air transport sector with as many as 50,000 members and €400-500m of assets.
Powerful trade union confederations, CGIL, CISL, UIL and UGL have told Covip they are willing to proceed with the merger but smaller independent trade unions, for instance those representing the pilots, may still oppose and delay the deal. In addition, air carriers and other transport companies, whose support is vital given that they would all be represented on the board of the wider pension scheme, have been less clear about their intentions.
However, a Previvolo, Fondav and Prevaer merger would reduce costs for their members. Previvolo’s administrative costs are up to €170 per member a year while Prevaer’s members pay €28. This compares with costs to members of larger schemes like Cometa, the mechanical workers’ fund, of €13 a year. In addition, the fact that many airline pilots are not working following Alitalia’s collapse has also increased administrative costs.
Prevaer chairman Giancarlo Gugliotta notes that costs reduction is only one of the merger’s beneficial effects. “The main benefit of merging with the two other schemes is that a single unit will create economies of scale, and achieve greater firepower,” he says. “This especially when it comes to dealing with asset managers, as they are relatively new schemes. I believe that aggregating schemes increases the degree of security for members. The many smaller schemes have little contractual power so building relationships with asset managers and insurance companies can be difficult.”
Gugliotta adds: “There obviously are some difficulties in completing this merger, primarily that there are three boards and the consolidated unit will have only one. Also, there are different kinds of members, as their occupations range from pilots to airport personnel and flight controllers. Pilots, for instance, want to preserve the specific service that are provided by their scheme. But generally, every part agrees that the merger is beneficial to all.”
Tommaso Merlino, who represents UGL, the trade union confederation linked to right-wing party Alleanza Nazionale, on the Prevaer board, says that important steps have been taken towards the schemes’ merger through a joint letter from the main unions to Covip and meetings between union representatives. “Both the trade unions and the companies involved are willing to work towards the merger,” he says. “In fact this could result in a common contract for the whole air transport industry. This is not a necessary step, however, but it would be important particularly when the industry has to discuss core questions like that of the collapse of Alitalia.”
Merlino says a more far-reaching objective would be creating a single scheme for the wider transport industry. But that is some way off. While Fondav and Previvolo have achieved almost total participation by their potential membership, Prevaer has only 11,000 members out of the 35,000 people who could join.
And some are concerned that merging funds could have a negative effect. Claudio Pinna, managing director of Hewitt in Rome, says: “Certainly there are positive aspects in merging schemes: reduction of costs, economies of scale and fewer board seats. But what worries me is the impact on competition. The more mergers, the fewer options workers have. You could reach a situation where, with few large funds in the country, asset managers will not have to compete very hard for mandates, and this could have an impact on the quality of the service they provide.”