The debate on the reform of Italy’s second pillar pension system is firing up with proposals for automatic enrolment, whilst the government is locked in negotiations with the unions to bring about changes to the system not seen in over a decade.
Andrea Mariani, the general director of Fondo Pensione Complementare Pegaso – the pension fund for employees in the utilities sector – told IPE that his proposal focuses on an “effective automatic enrolment,” where the employee is enrolled in a pension fund, has the opportunity to try the supplementary pension plan and, only at a later time can opt to halt contributions.
A nudge to push employees to join pension schemes requires an “easiest choice to remain enrolled in the fund and not to keep the severance pay [Trattamento di fine rapporto (Tfr)] in the company”, as has happened in the last 15 years, he added.
All employees, or at least new hires, would enrol in schemes for a trial period of 12 months, according to Mariani’s proposal, instead of having six months to decide whether to join or not by transferring the Tfr to the pension fund.
According to current rules an employee becomes member of a scheme automatically if they do not make a choice within six months.
Mariani explained that his 12-month proposal instead of six is beneficial because in the past 6 months employees were left to decide whether to join a pension scheme. “(N)ow, instead, a 12 months’ period would allow to try out concretely the benefits of a pension fund,” he said.
He added: “Honestly, in a shorter [period of] time it would be difficult to understand the benefit [of joining a scheme], especially in cases where collective [bargaining] agreements foresee quarterly payments that can cause a slowdown to effectively start-up the investment.”
Employees who enrol in pension schemes by transferring the Tfr without making a formal choice – so called ‘tacito conferimento’ – are assigned since 2007 to the ‘garantito’ sub-funds with returns in line with the severance pay.
But in the last 15 years “this type of fund has faced many obstacles, both due to negative interest rates and due to the tightening of rules relating to guarantees,” with insufficient returns for effective retirement savings, Mariani said.
Pension funds should therefore choose the “default option” of the scheme based on their knowledge of memberships: some funds have a more streamlined offer, focused on the ‘bilanciato’ option flanked by a ‘garantito’ option, while others offer multiple lines of investment and, in these cases, a Life Cycle strategy could gradually shift the position from the riskiest strategy to the least risky strategy during a certain period of time, he explained.
Mariani had expressed his view on expanding the second pillar pension system in Italy in an opinion piece for the Sole 24 Ore newspaper. The proposal, made in a personal capacity he said, aims to open up a debate in the industry on what form the next tacit consent could take.
The benefits of such a proposal are a final boost to the second pillar in Italy, which would see “one part of the working population protected and another wider part without any protection,” Mariani said.
Asked whether his proposal could add up to the current negotiations on pensions reform, Mariani said that it is “difficult for a single voice to change a debate at a political level,” but a debate involving several actors in the industry could offer ideas that are “certainly useful for the negotiations underway.”
Massimo Malvasi, the general director of Fondo Arco, the pension fund for workers employed in the wood, furniture, forestry, brick and concrete sectors, has picked up on Mariani’s idea in favour of the automatic-enrolment or a six months extension for employees to decide whether to join a scheme or not.
Less than 30% of employees are building up supplementary pensions with the risk of seeing poverty in old age to increase over time, he said.