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Impact Investing

IPE special report May 2018

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Italian pension fund market faces obstacles

ITALY - The Italian pension fund market has great growth potential, but there are still obstacles that need to be overcome, says Laurent Huck, chief executive officer of Invesco Italia.

The weaknesses of the Italian pensions market at present are numerous, says Huck. The market is still very small, there are still blurred areas that need additional reform, the market is concentrated and led by large domestic players, laws and the tax system are both complicated, and there is a lack of welfare culture among Italian citizens.

As a result there are four challenges that face the industry - product structure, consumer needs, competition among products and the issue of profitability.

With regards to product structure, Huck says that due to the well-controlled laws, it is very difficult to come up with a valued proposition which makes your product distinctive.

For the asset manager, the needs of the consumer must be addressed, and key factors here will be producing simple products, transparency, communication and pricing. But, points out Huck, as pensions products are cheap (fees are low), and as the market is still very small still, there is simply no money to afford the communication and training that is need to push the market forward.

Indeed Derek Collen, partner at IAMA Consulting, feels that the question - what pensions market? - is a fair one. Almost 17 million Italians do not have any form of complementary cover - which while offering a dream to asset managers, if the Italian people do not share the dream, then the situation will be not improve, says Collen. "The government is not getting the message across," he says.

Competition of current products is further challenge that must be addressed if the market is to develop, says Huck. PIPs, individual pensions plans offered by life assurers are a point of controversy. The products tempt distributors as, due to their large fees, they are more lucrative.

They are able to be so, however, as they are not governed by pension fund regulator COVIP, but rather the insurance regulator ISMAC. Furthermore, consumer of PIPs are largely unaware of the enormous fees and costs that hey are subject to. Collen says that while PIPs may have attracted 950 million euros in contributions, only around 650 million euros of assets are under management after costs.

Huck wants to see PIPS put into the third pillar, and open and closed funds treated as equal second pillar products. He is hopeful, however, that the issues will be addressed. The government is currently working with the social partners to re-organise the existing pensions rights, and re-assess regulation, and Huck says there is a strong commitment to move forwards.

In addition it is possible that the government will move the TFR contributions (7.41% of salaries are presently deducted as severance pay) into the funded second pillar - this could equal as much as 13 billion euros a year. "We will see over the next six months," says Huck.

Huck was speaking at the PensMart 5th Annual European Pensions Market Forum yesterday in Frankfurt.

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