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Private pensions in Italy Print E-mail
23/12/2007
Italy's corporate pension funds, which are part of a second pillar system, remain quite distinct from their Anglo-Saxon counterparts both in terms of their organisation and investment restrictions to certain asset-classes such as hedge funds.

First let us consider their organisational structure. Few Italian companies have their own internally-run corporate pension scheme. Most outsource their pension assets to open funds. One of the largest is the €650m Arca Previdenza Fondo Pensione Aperto (see related article). "It is extremely rare for a company to create its own pension fund," says Professor Alessandro Trudda, a pension specialist at the Università di Sassari. "The operating costs are quite high and they have to fulfil specific solvency requirements."

Another reason for the low diffusion of corporate schemes is that every employee is entitled to a public pension plan, says Trudda. Because the contribution rate to the public pension system is high, it is difficult for employees to afford contributions to other pension funds set up by their employees.

The history of Italy's private pension system is relatively recent. Until the 1990s, social security and pension disbursement were publicly funded and administered. In 1995 and 1996 pension reforms were passed calling for the privatisation of certain sectors of the social security and pension administration. Any professional group such as lawyers, engineers and psychiatrists, recognised by a Board was to create and administer its own retirement fund.

These financial institutions called Casse di Previdenza e Assitenza dei Liberi Professionisti were to no longer rely on government assistance. "The change essentially meant that, should a given fund reach a negative balance, there would be no more financial backup from public finances," according to an academic study authored by Alessandro Fiori Maccioni of the London School of Economics.



"When the second (private) pillar reforms were put into place, few people contributed," says Flavia Coda Moscarola, a pension specialist at the Centre for Research and Welfare Policies (CERP). "A new law was passed in 2007 to encourage growth in the second pillar system. It provided employees with the option to transfer 7% of their salary into an externally-managed industry pension fund. Many workers, however, prefer to not opt for the option and prefer to receive a lump sum from their respective company at the time of retirement."

Participation in private pension funds is voluntary. Only 13% of employees and 7% of self-employed have enrolled, according to Covip, the Italian pension regulator. In order to enhance the development of the private pillar a "silent-assent" mechanism was introduced in 2007, automatically transferring an employee's 7% contribution into designated pension funds, unless a worker explicitly opted against this. Ministerial Decree 703 passed in 1996 regulates the type of assets pension funds can invest in.

VB and CM


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