ITALY – The Association of Italian Banks has agreed to the launch of a fund to compensate employers who chose to pay employees’ severance pays to pension funds.

The agreement marks progress in the implementation of the pension reform. The association, Abi, said in a statement that its executive committee had unanimously agreed to the project. It envisages the setting up of a state-financed fund to be called “Public Guarantee Fund”.

It is meant to encourage banks to give easier credit to employers paying workers’ severance payments, also known as Tfr, to a pension fund rather than releasing it as a lump sum at the end of the worker’s career.

Welfare minister Roberto Maroni said earlier this month that the Tfr reform was ready to kick in on time with the government July deadline, provided that Abi agreed to the fund.

Abi’s approval effectively means that banks have committed to back businesses, especially small and medium enterprises, which by paying Tfr to pension funds, would lose a precious self-financing source.

The credit offered however should not be used for business purposes, but solely as compensation for the lost Tfr income.

But Abi’s endorsement comes with provisos. The association requires that banks alone be able to decide on applicants’ credit worthiness and financing rates.

Abi spokesman Gianluca Smiriglia told IPE: “The banks are keeping the safeguard of controlling credit worthiness. The press has called this ‘conditional’ but it is not, it is actually a guarantee.”

Smiriglia was unable to quantify the compensation rate offered to employers as well as the time scale for the set up of the fund. The welfare ministry declined to comment.

The president of pension regulator Covip, Luigi Scimia, however, estimated that with state financial backing the Tfr volume would double from the €2bn estimated for 2006 to €5bn.

He said that when the €530m state help, guaranteed by the competitiveness law, the rate of Tfr paid to pension funds was “bound to rise”.