Slow progress awaits reforms
Since the law regarding the creation of new pension funds in Italy came into force in 1993 the market has been developing slowly. A significant number of new pension funds are now fully operational but assets and subscribers are still low.
However, 2002 was a good year for the consolidation of the new pensions industry. According to data from the Italian pension fund supervisory authority COVIP, by the end of last year there were 1.36m members of open-ended and closed-end pension funds with around €4.5bn in assets – an increase of 40% on the previous year.
In addition to this, the pre-existing pension funds or foundations that cover the banking sector and other professional group, have around 700,000 members and assets of €30bn.
However, despite the current growth in members and assets under management, the Italian market for supplementary pensions is still small compared to other European countries. Further reforms in social security are needed to attract more interest from employers and employees.
The introduction of the EU Pensions Directive during the Italian presidency of the EU could be seem as an opportunity to increase public awareness, although the short-term impact that the new legislation will have on the Italian pensions market is expected to be minimal.
“In the short term we won’t see any mayor impact as a consequence of the introduction of the directive because of the structure of our own system,” says consultant Guido Blasco at Hewitt Associates in Milan. “To adapt our system to the general principles of the directive we would need to completely modify our own legislation and this is not likely to happen in the future.”
Blasco adds: “Everything that removes obstacles and borders is welcome, but we have a very weak system that is heavily oriented on first-pillar pensions while most European countries are focusing more on the second pillar. The modest start of the newly created pension funds is linked to a very generous social security system that makes people believe there is no need for supplementary pensions.”
When thinking about the longer term, however, the directive is already the centre of discussions regarding how pension funds are going to operate in the future. For Luigi Ballanti at Rome-based Mefop, the pension funds advisory body, some of the topics included on the directive’s text will be very important for the future development of the new pension funds. “The prudent man rule towards investment proposed in the directive and the introduction of not only quantitative but also qualitative limits will have a very important impact on our market.”
Article 18 regarding investment rules will not only affect the way the newly-created pension funds manage their assets but will affect how the pre-existing foundations invest their money. “We are now waiting for information from the Treasury regarding investment limits for the old pension funds and it will be interesting to see how Article 18 will influence this.”
Ballanti adds: “Also, what the directive says regarding the power of the authorities is a very important topic for our market. In Italy we are discussing a new regulation regarding the authorities in the financial markets and the directive text has made it clear for us that it is very important to have a specific authority for pensions.”
So even though Italian pension funds will not see their day-to-day activities change as a consequence of the introduction of the directive, the future of the market could be significantly affected by what the EU legislation says. It’s now a question of waiting for the much needed pensions reform that, according to prime minister Silvio Berlusconi, will happen in the near future – despite trade union opposition to the increase in retirement age that the government has proposed. Also in the months to come we will continue to hear of the never-ending debate regarding the transfer of the TFR into pension funds, which could result in a much-needed injection of cash into the industry.
“The transfer of the TFR and the ongoing debate regarding the reform of the social security system are two of the most discussed subjects in our industry,” comments a Turin-based pension fund manager. “For us these issues are much more important than how the directive will impact our schemes in the short term. In terms of investment limits, corporate governance and other related issues the text of the directive will of course influence future decisions but for the time being we are all more focused on what is happening inside our country.”