ITALY - Covip, the Italian pension funds regulator, said greater transparency and competition is needed within the TFR severance payments arena, in order to encourage take-up by workers.
Covip chairman Luigi Scimia has told IPE further work is needed to expand private pension provision among employees as workers in certain sectors are still heavily relying on state pensions and 'closed' pension schemes.
Reforms were recently introduced in Italy which gave employees - working at companies with more than 50 staff - the choice between severance payments to a private pension fund or keeping it within the company. These TFR payments would be held within pension funds unless employees specifically stated they did not want assets to fall into the second pillar pensions regime.
Scimia's concerns come just weeks after Covip released data showing an increasing number of Italian workers are switching to private pensions, as there was a 50% increase in subscriptions to private pension schemes in the six months to June, to a total of 2.7 million, or around 22% of the 12.2 million workers affected by the reform.
"We are finding it difficult to achieve our aim of creating a more competitive and transparent sector, in order to make workers aware of the different returns and costs of leaving their severance payments with closed funds compared to open ones," said Scimia.
"There is still a lot of work to be done before the market becomes really competitive, where intermediaries show to people that there is a wide choice of products, ranging from closed funds with low costs and open funds with higher costs but much higher returns," he added.
Difficulty in making the sector more competitive lies in the power of Italy's union, who are still wary of private pension schemes, according to Scimia, as suggests some unions are still luring workers towards company pension schemes, state pensions or at the very least closed pension schemes.
"The contractual power of unions is still strong, and until the labour ministry does not decide to make any legislative reform, it will be hard to create a more transparent environment."
According to unofficial data produced for Covip by Istat, the Italian national statistical institute, of the 12.2 million workers affected by the reform, 6.4 million belong to the tertiary (services and commerce) sector, and the number of workers subscribing to closed pension funds in the sector is a staggering 5%, much lower than in the industrial sector.
Nevertheless, Scimia pointed out the very low number of 'silent' workers across the different sectors is the great news in this regard. Silent workers are the ones who did not express where they wanted their severance payments to be held, whose money will flow into the private sector, and the fact that their number was low shows that awareness of the importance of having a retirement strategy is spreading.
At the same time as Covip has sought to highlight the need for competitiveness in the pensions market, the Italian government is facing a referendum among union members over plans to raised the state retirement age to 61 by 2013.