Consultants and occupational pension experts have criticised proposals by Italy’s pension regulator Covip on default life cycle investment options for auto-enrolled employees as overly prescriptive.
According to industry figures, the proposed rules would limit pension fund boards’ discretion in setting strategic asset allocations.
The comments follow a consultation launched by Covip in April on minimum investment criteria for contributions and severance pay (Trattamento di Fine Rapporto) of employees auto-enrolled into pension funds through life cycle investment options with higher equity exposure.
Italy’s auto-enrolment regime for new hires is due to start on 1 July.
Under the consultation proposals, Covip suggested a minimum equity allocation of 65% for younger pension fund members to capture higher long-term returns, falling to 15% for members approaching retirement to reduce volatility and protect accrued capital.
Silvio Bencini, senior adviser at LCG Advisory, said the criteria are “unnecessarily specific” and “inconsistent with the spirit of the legislation” currently in force, which leaves asset allocation decisions to boards of directors based on members’ needs.
Claudio Pinna, Aon’s head of wealth consulting in Italy, described the minimum standards as “bureaucratic”, arguing that they fail to address the level of expected performance for members.
“Age and distance to retirement are the main variables for defining the investment strategy, but other factors could also be included, such as income levels, or market shocks,” Pinna said.
Pinna added that the introduction of life cycle options was positive, given the lower returns generated by ‘Garantito’ sub-funds, which invest mainly in bonds and have so far served as the default option.
Paolo Pellegrini, deputy director of pension think tank Mefop, said Covip should adopt “very minimal” criteria and grant pension funds one year, rather than six months, to implement life cycle profiles.
Covip has proposed a six-month transitional period for pension funds to comply with the new rules, which would apply to industry-wide pension funds, pre-existing pension funds and open pension funds.
“Overly prescriptive guidelines could sideline even corporate pension funds, with members ending up in the default fund rather than the pension fund of an industry,” Pellegrini said.
Industry-wide pension fund Cometa, which serves metal industry workers, will act as the default fund for auto-enrolled employees if pension funds fail to comply with Covip’s regulation by 1 July.
Pension funds argue that boards should retain the flexibility to structure life cycle asset allocations according to members’ demographic profiles.
Sergio Corbello, president of Assoprevidenza, the association representing Italy’s complementary pension industry, said the rules “need to be rethought”.
