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IPE special report May 2018

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Italy: Compulsory membership and education are key to improving pension system

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Francesco Vallacqua is a research fellow of Center for Applied Research and Finance (CAREFIN) at Bocconi University of Milan. He has held positions as a consultant to governmental institutions and pension schemes, such as at Cometa, the fund for mechanical engineering industry workers, and is currently a board member of Espero, the teaching professionals’ fund.

Vallacqua has remarkable experience and influence on pension issues. He is regularly called as a speaker at the most important pension and investment events in Italy and publishes scientific papers on national and international journals. Vallacqua has strong, clear opinions on how to ‘fix’ the private pension system in Italy, and outlines his views on compulsory membership of pension funds Italian workers.

“Introducing compulsory membership of pension schemes is clearly a way to increase membership and therefore to provide an engine for growth in the sector,” Vallacqua explains. “Membership of a pension scheme should be compulsory but workers should also have the right to opt out after a certain period of time. But the issue of compulsory membership is not so straightforward as it is linked to the Italian constitution, because a law making membership compulsory would have to deal with section 38 of the charter. In theory, the regulatory framework as it is means that compulsory membership could be already enforced for workers in the public sector.

“For the private sector it is a different story, and parliament would need to approve a law making membership compulsory. However, some argue that in both cases, public and private sector workers, compulsory membership might clash with section 38 because of the different definitions of a complimentary pension system – whether or not it is of the same nature of the public pension system. But compulsory membership would do the trick, and so far the ‘silent approval’ mechanism that has been tested has made everyone agree because it is a compromise.”

Vallacqua says that there is a mix of factors that would contribute to the ‘normalisation’ of the Italian pension system and solve the current situation. One unavoidable factor is the professional qualification of board members of pension schemes.

He says: “Qualifications for board members are key to the development of the sector. There are too many pension professionals in Italy who do not know regulation well enough or do not have a grasp of the nuances of institutional investment. For anyone who wishes to work for a pension scheme, professional-level education on the subject should be compulsory.”

There are many questions on the type of regulation and structural elements the sector is missing, and what lawmakers should do about it. Vallacqua also poses questions about the current finances of the Italian public pension agency (INPS). “Where is the €2bn coming from the treasury office of INPS, which the previous governments were planning to use for infrastructure investments? Why don’t we use this sum for complementary pensions straight away, or at least begin a debate about how to use it, since is comes from the trattamento di fine rapporto, (or severance pay) of Italian workers?”

 

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