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Politics prevail

The development of the pension fund industry in Italy has been, once again, the centre of political discussion throughout this year. Changes in the labour market by the Berlusconi government and the on-going debate about the transfer into pension funds of the TFR, a lump sum workers receive when leaving an employer, have affected the growth of a market that remains in stand-by mode.
Since the new complementary second-pillar pensions were introduced in Italy in 1999, around 40 closed-end funds, serving industry and other groups, have been set up, but their small size and low membership, covering less than 7% of Italian workers, means the total size of this market is still very small. According to data from Mefop – an organisation sponsored by the government that monitors development of the pension fund industry – the assets of new closed-end funds totalled €2.2bn at the end of 2001, covering around 1m workers. The total assets of third-pillar pensions represented €950m with around 300,000 participants.
For most professionals in the market, the industry won’t really take off until the TFR is transferred into pension funds. Labour reforms making it easier for employers to terminate contracts mean this transfer is now being even more strongly criticised by workers’ organisations.
For Piero Marchettini, managing partner at Adelaide Consulting in Milan, the future of the industry is more uncertain than ever and all the hopes regarding the new government’s intention to boost the second pillar have vanished. “The transfer of the TFR does not only depend on issuing a specific law, but this has also to be acceptable by employers and employees,” he commented this summer.
Companies are reluctant to lose the huge amounts of cash that remain in their book reserves, and are asking the government for reductions in social security contributions in exchange. But for employees who have seen how the new government has increased insecurity in the labour market, transferring the secure TFR into pension funds that have been performing poorly is not attractive.
The political debate on the reform of the state pension will continue. A package of reforms that had already been approved by the parliament, but was later stopped by the government under pressure from unions and employer associations, is still under discussion. It includes changes in contribution rates, more flexibility for asset managers and amendments to the retirement age. According to estimates by Milan-based IAMA Consulting, it could help to increase the size of the industry as whole from €3.6bn to €39.5bn by 2005.
However, the first talks about the reforms package between government and unions held in July resulted in deadlock when the unions showed their opposition to raising the retirement age and asked the government for tax-breaks in the third-pillar market instead. These talks are expected to carry on this autumn, although agreement is unlikely.
So, the TFR is still the most hotly debated issue in the market, not only by employer and employee representatives, but also by asset managers, which have seen the TFR used as a benchmark against which to compare their performance. Since during the past couple of years TFR returns have been higher than the average pension fund performance, it is easy to understand that money managers have found the going tough.

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