Italy is a self-perpetuating paradox. Structural and historical forces keep the country under constant pressure; yet they drive a search for innovation to solve long-lasting problems. The pension system is a perfect example.
First, to respond to the looming pension emergency, 20 years ago lawmakers reformed the second pillar, wisely opting for a defined contribution system with no minimum funding requirement. This while other countries still struggle to ensure the sustainability of defined-benefit pensions today. At the same time, the reformed second-pillar system has not attracted sufficient members, in large part because the pension industry has failed to educate the workforce and convey the difference between private investment and saving for retirement.
The presence of a single control authority, the COVIP (Commissione di Vigilanza dei Fondi Pensione), is another significant innovation. Not every country has a single body responsible for pension funds – more often retirement matters are regulated by the same authority that oversees banks and investment managers, creating potential conflicts of interest. But COVIP has not had enough resources and power to fulfil its role, leaving important gaps in regulation. Other authorities still rule on pension fund investments and the presence of multiple control agencies has caused confusion.
The two main legislative acts defining investment limits for closed pension funds, approved in 1996 and 2005, contain rules that are potentially ideal for pension fund investment. As a result, Italian funds fared better than European peers during the crisis. However, they have not fully capitalised on their investment potential. They still lack the skills to create attractive returns for their members and to be more active investors in the Italian economy, despite demand for support.
The pension industry is still affected by the antiquated thinking of those that govern. All the lobbies that feed off the industry are concerned with their individual welfare but this dynamic has not maximised the benefit for Italian workers. The reasons are simple: old paradigms are difficult to eradicate, and the excessive respect for tradition can become an enemy of innovation; and the lack of shared objectives thwarts any effort to move from a sub-optimal situation.
As much as any other sector in Italian public life – politics, business, culture – the pension industry requires a serious shake-up of the old, deeply corrupt ruling class. Only this will fulfil the country’s potential for growth on the back of its potential for innovation.