ITALY – The proposed reduction in the level of compulsory contributions employees make to the state-controlled pay-as-you-go (PAYG) system in Italy, which is designed to stimulate the country’s asset management and pensions industry, has come under fire from trade unions.

The conflict surrounds companies seeking some form of compensation for the government decree that companies take the ’trattamento di fino rapporto’ (TFR) severance pay out of their balance sheets and use it to finance their company retirement provision or insurance scheme instead.

Alternatively employees may opt to take the money and invest it in other open-ended occupational schemes. The government compromised by reducing the level of compulsory contributions employees and companies have to make to the PAYG system.

It is hoped that the money saved will be placed in private pension funds or the new-style sector-wide supplementary occupational pension schemes, stimulating the asset management market and thus easing the financial burden on the government of an ageing population.

However, a spokesman for COVIP, Italy’s pension fund supervisory body, says that the unions do not want to see any change in the level of PAYG funding, even though they agree that the TFR should be hived off to fund company pension schemes.

“It certainly makes sense to re-appropriate TFR funds so they can be used to as investible assets to generate profits, but the unions are against cutting the employees contribution rate to the PAYG plan, even though they are aware that the system is fast becoming obsolete in light demographic changes,” says COVIP’s spokesman.

However, a spokesman for Confederazione Italiana Sindacati Lavoratori (CSIL), which with 4 million members is Italy’s second largest confederation of trade unions, says that the union opposition lies in the government’s ambiguity towards setting up a viable pension fund system and in protecting employees’ basic rights.

“Whilst we understand in principle what is being proposed, if companies don’t set up occupational schemes or encourage and educate their employees to join external schemes, many may find themselves without adequate retirement provision as PAYG is the only source of money they have for when they stop work. The government needs to define its intentions a little more clearly, so that we can see what will effectively replace the reduced PAYG contributions.”