Assofondipensione, Italy’s pension funds association, has called on the government to reduce the tax burden on returns, introducing tax incentives for investments of pension assets in the country’s economy.

Speaking at a meeting for the association’s twentieth anniversary, president Giovanni Maggi has asked the current right-wing government to cut the tax levy on investment returns of pension funds, currently at 20%.

“The time has come for the new government to promote a more competitive taxation on investments with conviction. It would be a good signal for [pension] funds that have responsibly started networking to bring benefits to the country’s [economic] system,” Maggi said.

Assofondipensione has started the Real Economy Project (Progetto Economia Reale) to invest assets of pension funds in the national economy through private equity and private debt funds of funds managed by the Fondo Italiano di Investimento SGR (FII).

To date, 16 fondi pensione negoziali, or industry-wide pension funds, have joined the project launched in partnership with Cassa Depositi e Prestiti (CDP), the partly state-owned investment bank, Assofondipensione said.

The association is also demanding the government replaces the pro-rata standard to calculate pension benefits, abandoning the option to tax returns on “accrued” assets, Maggi said.

It favours increasing the limit of €5,164 for tax deductions for higher incomes, and for those who join pension funds and are responsible for paying contributions for another member.

According to Maggi, Italian social security taxes could be aligned with the EET model – exempt contributions, exempt accrued interest, and taxed benefits’ payment – adopted in most European countries.

“We also need tools to support small businesses transferring the severance pay (Trattamento di Fine Rapporto) of their employees to supplementary pension plans, facilitating the access  to credits to compensate for the loss of liquidity with regard to severance pay paid to pension funds,” he said.

Assofondipensione’s government call out echoes the requests of the doctors’ scheme Enpam, Inarcassa, the association for the complementary pensions sector Assoprevidenza, and Adepp, the Italian association of private pension funds.

Declining assets

Last year, assets under management (AUM) of industry-wide schemes declined by 6.5% year-on-year at the end of December 2022 to €61.3bn, on negative returns of 9.8%, according to regulator Covip.

Overall, AUM of Italian pension funds declined year-on-year in 2022 by 3.6%, or €7.7bn, to €205bn.

Italian schemes allocated 53.7% of their assets to bonds and other debt securities, including 16.8% in Italian public debt securities, according to the regulator.

Overall, 22.7% of assets were invested in the Italian economy, with government bonds representing the largest share of investments at €29.6bn. Pension funds’ equity investments are marginal due to the low level of capitalisation of the Italian Stock Exchange.

“It would be important to encourage pension investors to move toward long-term productive investments, supporting the growth of the Italian business system,” Maggi said.

Last year, the number of members joining industry-wide pension funds grew by 10.1% to 3.80 million.

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