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Top 1000 Pension Funds: Focus on the second pillar

The focus of the pension fund industry is now on second-pillar reform, which is set to open up the investment universe for pension funds, writes Nina Röhrbein

With a coalition government now in place since April, the focus of the pension fund industry is on the second pillar after the previous technocratic government of Mario Monti introduced reforms for the first pillar.

Leading the way is the review of decree 703/96, which is pending approval. In its present form the decree limits the investment universe for Italy’s second-pillar pensions.

The new version is based on the prudent-person principle and will allow the pension funds introduced after the 1993 reform – the new, open and closed-sector pension funds – to invest in alternatives such as private equity, hedge funds, commodities and real estate.

The main difference is expected to be in emerging markets, exposure to which is currently highly restricted.

But the revised decree is not expected to change asset allocation much because of the control of the underlyings and look-through principles required by the regulator, and because few funds have taken advantage of the alternative investment opportunities open to them.

Many funds are changing their internal by-laws so they can invest in all the asset classes already permitted. Closed funds, for example, are allowed to invest in real estate and private equity, but their by-laws have restrained them from doing so.

In 2012, the supervisor COVIP required Italian pension funds to strengthen their internal structure, in particular their finance and control functions, and to issue investment documents which clearly communicate the risk-return objectives of the different investment lines offered.

By the end of 2012, the largest pension funds submitted their statement of investment principles and evidence of a financial office to support their board in the different phases of the investment process. Funds with fewer than 1,000 members have until the end of 2013 to submit their statement.

The first-pillar schemes for professionals, the casse di previdenza, came under the supervision of COVIP in 2012. However, some responsibility for them still lies with the ministry, as COVIP only has the power to control their investments, not to impose changes in benefits or to check their long-term sustainability.

In 2012, the casse di previdenza underwent an exercise to determine their 50-year financial sustainability. Many of them moved from a defined benefit to a defined contribution structure and changed the rules regarding their guaranteed benefits by linking them to contributions as a result.

Under Monti’s reforms, the retirement ages of women and men were aligned to 66 years for both from 1 January 2012. Automatic indexation of the retirement age in line with improvements in life expectancy started with three months in 2013. A further increase, probably to be at least three months, will be added in 2016. From 2019, the adjustment will be made every two years.

One proposal included in the labour market reform is for companies to be allowed to dismiss employees four years ahead of their official social security retirement age or to move them into part-time work.


As a result, the government, employers and unions are thinking about allowing earlier access to second-pillar pensions and using the annuity to bridge the income gap until employees qualify for a full state pension. Some employers in the Lombardy and Veneto regions already offer their workers aged 62 and over the option to work part-time and to cash in their pension savings. This approach could make second pillar pensions more attractive to the rest of the working population.

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