Italy: researchers warn on Tfr pension risk
ITALY – Researchers have warned workers with irregular jobs not to put all their end-of-career payment, known as the Tfr, into pension funds.
The Center for Research on Pensions and Welfare Policies, Cerp, said that investing the severance indemnity in pension funds “may not be satisfactory because of discontinuity in careers”.
The comments – from researchers Carolina Fugazza and Federica Teppa – appear in “An Empirical Assessment of the Italian Severance Payment (Tfr)”. The study focuses on what is considered to be the bedrock of the Italian second pillar pension system and was developed on two sub-samples totalling more than 125,000 workers.
“It is a warning,” Fugazza told IPE in an interview. “Especially considering that these workers could invest in pension funds.”
In September last year Hewitt Associates estimated that the total Tfr payments into pension funds could reach E13.5bn a year.
Fugazza said those with irregular jobs could still retrieve funds from their pension investments but could lose out if that happened in an economic downturn.
“Now, workers can keep their Tfr within their firms receiving a guaranteed return. If they invest in pension schemes only for a short while, there is risk.”
Fugazza observed that workers with uncertain jobs might not have the opportunities and benefits of long-term investors.
The study is topical. The pension reform approved last July will soon enable workers to pay their Tfr into pension funds, giving the underdeveloped second pillar a boost.
In an interview in December, Alberto Brambilla, undersecretary for Labour, Health and Social Policies, told IPE that up to €5bn could be paid in pension funds once the more this aspect of the pension reform is implemented.
But the new study potentially casts doubts on these growth prospects.
“Retirement-Tfr is associated with continuous careers and with no anticipated cash- outs,” the study states, explaining that workers may actually use parts of the payment as a “buffer fund” to cope with unemployment or for “liquidity purposes”, to pay for mortgages or ill health.
The “buffer” purpose potentially applies to the 1.8 million workers seeking employment according to a report issued by the Institute for Statistics, Istat, referring to the third quarter of 2004.
Cerp’s study has also revealed that men are more prone to use their Tfr before retirement. But white collar women employed in small firms are also prone to use chunks of Tfr as a “buffer”.