Fighting the good fight
“Whatever happens we must not lose,” this may seem a battle cry from a general rallying his men in an historical battle. Instead it was uttered in the less eventful occasion of an interview, and it applies to the Italian pension scenario – perhaps not a far cry from a battle ground after all.
The interviewee in question is Luigi Scimia, the head of the pension supervisor and regulator Covip. He was commenting on the clash of a bill with the pension reform, a conflict that since March has threatened the stability of the new pension reform and questioned Covip’ supervisory powers.
This legal “imbroglio” came when stability was most needed: the cabinet-designed pension reform was still being outlined via implementation decrees and therefore was and still_is in progress.
At the same time Covip’s president has headed the agency for a few months. Scimia’s appointment came the previous August as Lucio Francario stepped down.
On taking up the new role, he must have forecast a difficult transition period to 2008, when the reform is supposed to be implemented, but had no reason to expect a full-scale crisis. “I was happily employed as president of 11 companies when I was appointed Covip’s_president. I accepted out of a sense of duty,” he says.
“But I was told things would be running smoothly, the reform implemented, the second pillar on its way to_development,” he says. He certainly had no reason to think that Covip’s position would have been questioned by a bill passed by the lower chamber of parliament and still subject to the examination of upper one, the senate.
Strictly speaking, the so called savings bill, should constitute no threat to the pension reform, a law passed by both chambers of parliament that makes Covip sole supervisor of the pension industry.
But the bill touches a raw nerve: it tackles the inadequate governance that led to financial scandals such as the collapse of Parmalat and consequent loss for investors.
To put it in a machiavellian way, for the lower chamber of parliament the end of avoiding future Parmalat-like scenarios, has justified the means of dethroning Covip.
And the logic must have sounded dangerous to Roberto Maroni, the welfare minister, who said the pension reform could be halted in its tracks if parliament stuck to the bill and denied Covip its original powers.
Given that the badly needed pension reform came into being only July last year and after 18 months of tempestuous debates between opposition and the ruling coalition (and within the coalition itself), Maroni’s forecast was truly worrying.
The bill would put the supervision of insurance deals under the jurisdiction of Consob, the public authority responsible for regulating the Italian securities market.
Covip would lose the power to monitor management contracts between pension funds and asset managers.
“If we are supposed to supervise the pension sphere, it is primarily about monitoring stability and what better way would we have than checking the relationship between manager and pension fund?” Scimia says.
“We must keep this power at all costs,” Scimia adds. The bill has stalled at the senate, where it is currently considered. On 22 June, as Covip presented its annual report 2004, the regulator was in a limbo, still stripped of its exclusive role of supervision by a bill and still legitimised by a law, but things are beginning to stir in its favour.
The change is not down to sheer luck – the pensions supervisor immediately embarked on a campaign to have its powers acknowledged and Scimia has been at the forefront.
Those who have followed the Italian political situation in the last few months might have noticed that the pension issue, including the Covip question, has not been heavily covered by the mainstream press but has been a constant issue in the political agenda.
It is remarkable, considering the government crisis and the cabinet reshuffle that followed heavy losses for Silvio Berlusconi’s right-wing coalition at regonal elections in the spring.
The urgency of preparing the poorly structured second pillar to cater for workers whose first pillar provisions is to drop 19 percentage points in the next 50 years might have been the main reason behind this unusual steadfastness.
Politicians might also have started to appreciate that only a better regulated and functional second pillar can efficiently absorb the steady flow of severance pay money known as_Tfr invested in pension funds, as the reform intends. Schimia, however, has not lost time nor wasted opportunity to lobby. At conferences, through interviews, through Covip’s web-site, during audiences at the senate, and even as he presented to the public the regulator’s annual report, Scimia has been single-minded and passionate in making the case for Covip.
“The transfer of some powers to Consob has been surprising to use a light word,” Scimia said at the presentation of the annual report, an event featuring more than 500 of the elite of the Italian pension world.
“It’s not conducive to the system’s development that Consob has the role of supervisor and regulator over the transparency of pension products,” he said.
The Covip president is adamant that pension savings are a world apart from any other investment and should be protected even more as the Tfr money are due to become available to the market next June.
“This is a market of eight to e10bn a year” he says, “but I always stress that pensions investments should guarantee an income when a worker is no longer able to work. It is a vital social function and should not be treated as any other form of investment.”
It helps Covip’s cause that Scimia is a law graduate with a long financial background which gives him the technical investment knowledge and the flare to argue for the regulator. His curriculum vitae ranges from studies of the London Stock Exchange, to a stint at the International Monetary Fund with an interlude as chief operational adviser to the Central Bank of Trinidad and Tobago.
In Italy he was involved with Banca d’Italia, as one of 12 central directors, and the pension industry, mainly as president of the pension fund of Banca Nazionale del Lavoro.
It also helps the cause that welfare minister Maroni has been a staunch supporter of Covip. Maroni, who survived the cabinet reshuffle, has stressed that re-instating Covip would be instrumental to the progress of the pension reform.
In June Maroni presented an amendment to the savings bill “to erase that opprobrium that has deprived Covip of its powers to transfer them to Consob”, he says.
Scimia says he felt reassured by the consensus, slowly gaining the upper hand, that Covip should be the only pension supervisor, but refused to lower the guard, even after the amendments. “I will say I have won when this bill will give us back the powers that have been taken away”.
Scimia’s effort is not seen positively in every quarter; a pension manager, who declined to be named, says that Scimia came across as “conservative”.
But ANIA, the insurers association put out a statement to the effect that Covip should be granted supervision over pensions.
Elsa Fornero, an economist who heads the Center for Research on Pensions and Welfare Policies, CeRP, is another Covip supporter, but with a reservation. She says: “Italian insurance companies have not a great transparency record.” Covip, in contrast, has the advantage of a good track record, says Fornero. “Bearing in mind the Italian context,” she says, “Scimia is right to ask for Covip’s power back and the minister Maroni is right to defend it.”