ITALY - While the financial crisis has put a stop to immediate action in the Italian pension fund industry, changes remain on the horizon, say pension officials. And a reform of decree 703/96, relaxing the investment limits for closed and open pension funds may be one of them.

Work on such reforms could begin his autumn, depending on the Italian government administration body responsible, according to Ambrogio Rinaldi, central director at pensions supervisor Covip and chair of the OECD working party on private pensions.

"There is a feeling that the decree was one of the elements that made the impact of the financial crisis on Italian pension funds less severe," he said.

"But of course there are a few things that have to be updated and this will be done as soon as possible. For example, there is a ceiling of 20% on the amount of liquidity pension funds can hold, based on the idea that they should invest with a long-term horizon and not according to liquidity. But in the middle of a crisis and with investment lines targeted at people close to retirement, it may be a good  idea to hold more than 20% in liquidity, continued Rinaldi.

"That is why we have already allowed pension funds to relax this limit in the wake of the crisis. It is now expected that the liquidity ceiling will be dropped entirely in the new version of the decree," he added.

Guaranteed investment lines that replicate the rate of the severance pay, the trattamento di fine rapporto (TFR), could also come under scrutiny.

According to Rinaldi, they have been developing faster than other investment strategies because they are the default investment line for all members who remained silent in the automatic enrolment process, and in part because of the financial crisis as this has increased the risk aversion in the members.

"But Covip realises that guaranteed investment lines cannot be the answer," he said.

"They are only good when members are close to retirement or have a very short-term investment horizon. But in all other cases they are far from ideal and we have been trying to communicate this. The introduction of lifecycle-based lines of investment could be the future in Italy."

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