Maria Teresa Cometto
Italian pension funds are growing, but too slowly, according to Covip, the Italian Pension Funds’ Authority. In its recent annual report for 1999, it points out that current inflows are much too small when compared to the goal of creating a sound second pillar.
At the end of 1999, the assets of the new pension funds were only L1,507bn (e778m), comprising L1,054bn from the closed funds (created through a negotiation between trade unions and employers and dedicated to employees of specific industries) and L453bn from the open funds (created by banks, insurance companies, investment companies and open mainly to the self-employed).
The reason is not just the limited popularity of pension funds among Italians, which in itself suggests an effort is needed to make them better known and understood. Covip underlines that laws and rules – especially the fiscal ones – in this field have been changing continuously for too long and that some stability would reassure people and encourage them to invest in the second pillar. Additionally, the fiscal incentives are not very attractive yet. First, incentives for employees depend on the reform of TFR (the lump sum paid by the employer to quitting employee), which is still vague and far from approval. Second, particularly for the self-employed, incentives are poor, in order to reinvest the substantial savings they have already accumulated into pension funds. Covip suggests establishing incentives not as a percentage of the annual salary or income, but as a preset sum.
The report says that new pension funds’ members were 837,432 at the end of 1999: 136,305 in open funds and 701,127 in closed. A third of employees (33.2%) have invested in their industry’s closed fund where operating; the proportion reduces to 20% for funds just authorised and not operating yet.
Fondo pensione quadri e capi Fiat – the fund created for the automotive group’s executives and professionals – achieved the highest level of success: 85.1% of adherents, out of the almost 18,000 potential ones. Fondenergia’s rate was 59.3% among the 50,000 oil and energy industry’s employees; Fonchim’s rate was 48.1% among the 185,000 chemical industry’s employees; and Cometa’s rate was 28.6% among the 1m mechanical and metal industry’s employees, the lowest rate among operational closed pension funds.
The closed fund operating for dentists had only 2,119 members, 5.3% of the 40,000 professionals in this field; and Solidarietà Veneto, the first regional closed fund (created for the north east of Italy, had only 7,119 members, 2.2% of the potential 323,000.
Among the closed pension funds already authorised but not investing yet, Telemaco had 66,171 members, 74.9% of the 88,320 telecommunication industry’s employees; while Cooperlavoro had only 6,951 members, 2.3% of the 300,000 employees of the cooperatives involved. Some authorised closed funds, like the fashion industry’s Previmoda or that for the rubber and plastic industry Fondo Gomma Plastica, had not reached the minimum number of members necessary to commence. A real problem is that these employees cannot freely invest in an open fund, because theoretically they have already a closed fund to invest in, according to the law. So Covip is thinking of setting a deadline for funds to become active.
New funds applying for a registration with Covip are Artifond, for 900,000 craftsmen; Byblos, for 200,000 employees in the paper industry; Fonser, for 1m employees in the insurance industry; Concreto, for 13,000 employees in the concrete industry. Other initiatives are happening in the transportation industry Priamo and in Berlusconi’s Mediaset group.
For the closed funds the average contribution is 4.7% of the annual salary: 1.11% from the employee, 1.12% from the employer and 2.46% from TFR.
Most closed funds have a single compartment and invest mainly in bonds: 67% of the assets for Fonchim, 80% for Cometa (the most fixed-income oriented). It is a very prudent policy, which to some extent damages the youngest members, according to Covip, but which is determined by the need to meet the required TFR yield. As the TFR guarantees an annual return of 1.5% plus 75% of the annual inflation rate, the pension funds’ boards are afraid not to match this yield in the short term, so they have opted for a fixed-income investment policy. Luckily for their members, management fees are as low as the returns expected: 0.06-0.15% of the assets.
Much higher are the management fees for open funds, with an average of 2.24% for the equity funds, 1.56% for bond funds and 1.97% for balanced ones. At the end of 1999 open funds numbered 88. Insurance companies launched 47, investment companies, (società di gestione del risparmio SGRs mainly controlled by banks) 32, banks five and SIMs (another kind of investment company) four. In all, they had 136,305 members, more than half with SGRs’ funds.
These funds had 223 different compartments: 48.7% bond oriented, 29.2% balanced and 22.1% equity oriented. Fifty two compartments, mostly launched by insurance companies, guaranteed a minimum return. Due to the small amount of assets under management, many open funds’ compartments invest in mutual funds’ units, which amounted to 28.8% of total assets.
The ‘old’ pension funds created before the 124/1993 law, numbered 794 with L36,009bn under management, were invested 45.7% in bonds, 17% in real estate, 14% in insurance policies, 9.4% in mutual funds’ units, 6.6% in equities, 2% in cash and 5.3% in other activities.