Italian pension regulator Covip has relaxed the investment criteria pension funds must follow when designing life-cycle investment options under the country’s auto-enrolment regime, while extending the transition period for schemes to comply with the new requirements.
The changes follow a consultation launched in April, in which Covip proposed requiring life-cycle strategies to hold a minimum 65% allocation to equities for younger members, falling to 15% as members approached retirement. The consultation also envisaged a six-month transition period.
Under the final instructions, adopted in June, pension funds must instead allocate “at least 50%” of assets to equities for younger members and “not more than 20%” for members approaching retirement.
Pension funds will also have one year from the start of the auto-enrolment regime on 1 July to comply with the new rules, rather than the six months originally proposed.
Silvio Bencini, senior adviser at LCG Advisory, told IPE the changes are “positive”.
According to Bencini, the lower minimum equity allocation reflects the fact that many pension funds already operate sub-funds with at least 50% of assets invested in equities.
He added that another important change is that the initial phase of a life-cycle strategy can no longer extend beyond the fifteenth year before retirement. This means glide paths that automatically reduce investment risk over time can begin at around age 45 or 50, he said.
Industry feedback
The final rules reflect Covip’s efforts to accommodate feedback from the pension industry.
During the consultation, Fondo di Previdenza Mario Negri, the pension fund for executives of commercial, haulage and transport companies, called on Covip “to eliminate or scale back” binding quantitative requirements such as the proposed 65% equity allocation and requested a transition period of “not less than 12 months”.
Fondo Priamo, the pension fund for employees in the public transport sector, supported the objective of promoting life-cycle strategies but urged the regulator to take account of pension funds’ operational, organisational and governance constraints, calling for “gradual implementation” and a “reasonable transitional period”.
Pension fund association Assofondipensione argued that Covip’s proposed instructions went beyond a regulatory framework intended only to establish minimum investment criteria, adding that the original six-month implementation period was “inadequate” given the complexity of complying with the new rules.
Claudio Pinna, head of wealth consulting in Italy at Aon, said pension funds must still promptly inform Covip whether they are able to operate under the auto-enrolment regime and whether they already comply with the new requirements, but the longer transition period gives schemes more time to make any necessary changes.
“There will be pension funds that need to do more, and pension funds that need to do less [to adjust to the new system], but it is better to have a long transitional period than to postpone the entry into force of the regulation,” he added.
Some pension funds, including pre-existing scheme Pevindai and industry-wide funds Fondoposte and Fondenergia, have already completed the transition to life-cycle investment strategies.
Covip’s instructions apply to industry-wide, pre-existing and open pension funds.
