Consultants in Italy are still waiting for the domestic pensions market to mature. “Our domestic pension funds are still at a very primitive stage,” says Guido Blasco, consultant at Hewitt Associates in Milan. The pension funds that exist are too small to justify the cost of formal consulting on investment strategies, he says.
Perhaps in three of four years’ time, these new funds will have reached a sufficient critical mass to justify seeking such professional advice, says Blasco.
But a change in the law is awaited which could lead to more business for consultants. This is related to securitisation of the TFR (trattamento di fine raporto) employment indemnity to the balance sheet. This would lead to a massive inflow of investment into pension funds, which in turn should boost business for consultants.
If 100% of the TFR were invested, says Blasco, it would amount to 25,000 billion lire (e13bn). “So we are talking about a material investment,” he says.
The national category pension funds – which cover a large sector of the workforce, for example, chemical industry workers – tend to have large boards, which include employee representatives. Among the board members, there are individuals who qualify as experts in the field of investment, and it is often these people who give investment advice. This is done to save the cost of commissioning independent advice.
However, while this may save money, this practice creates a conflict of interest for the fund, says Piero Marchettini, managing partner of Adelaide Consulting in Milan.
The government has set up an organisation called Mefop, which is designed to monitor and assist in the development of the country’s pension fund industry. Mefop is 70% owned by the Italian treasury and 30% by pension funds themselves.
Intermediaries say that Mefop does the work of a private consultancy firm. Pension funds can use the services of Mefop for very little money, and in some cases it is free.
“So national category pension funds, instead of using consulting firms, either use some of their board members or Mefop,” says Marchettini. Both options create a conflict of interest, though, he says. A conflict of interest arises when pension funds use Mefop to advise them on investment issues, he says, because this organisation is linked to the government which levies taxes on pension funds when they make profits.
The government has a long way to go before the pensions market in Italy is liberalised. To put a stop to these conflicts of interest, Mefop should be closed, he says.
Also, open and closed pension funds should be put on an equal footing, he says. “It’s a hot issue which has been on the agenda for the last few governments, but they haven’t made any changes,” he says.
At the moment companies seeking to provide retirement benefits for their employees have to go to the national category pension fund. “Basically there is no choice,” he says.
And until Italy’s major employers have a real choice of pension provider, there is little point in them seeking consultancy services, says Marchettini. “Even a poor performer will not lose members because they have no choice,” he says.
Guido Blasco agrees that as the system stands now, there is little incentive for pension plan sponsors to seek in depth advice on maximising pension returns. “The mobility which would justify a deep analysis of performance is not here yet,” he says. “For the time being, it’s still a half-Soviet system.”