Almost E15m could be the minimum annual inflow to the new Italian pension funds if a law approved by the D’Alema’ government in August is put into practice. This new law encourages the securitisation of the annual cash flow that companies are supposed to put aside as ‘trattamento di fine lavoro’ (TFR): the lump sum that Italian employees get when they leave a company and that now must guarantee a yield of150 basis points higher than 75% of the inflation rate, making TFR’s rate approximately 3% pa currently.
The new law aims to convert these annual reserves into stocks and bonds, that can be bought by pension funds. At present, most employers do not put the annual TFR into special reserves, but use it as a cheap way to finance themselves. So, if they had to give it up, they would have to raise funds in other ways, either through bank debts ( which is much more expensive than the TFR or through the financial market (that Italian companies are not very familiar with).
Since securitisation of the TFR is not compulsory, both companies and employees would have to agree. Employees might think that their TFR invested in a pension fund would perform better than the current 3%.
There are different ways for such securitisation to happen. If listed, the company can increase its capital by issuing shares or bonds in favour of its employees' pension fund; if it's listed, but declares it will be in two years, it can issue convertible bonds, again in favour of its employees' pension fund; if it's not listed, but allow a ‘qualified financial operator’ acquire at least 10% of its capital , it can issue convertible or cum warrant bonds; if the company is not listed and has less than 50 employees , it can transfer cash from TFR to the pension fund.
Pension fund’ money managers would have to accept the securities offered by the companies, something that currently is not likely to happen: most fund managers think that the new fiscal incentives are not attractive enough to bother about TFR securitisation.
After the law was approved, there were proposals to abolish TFR by transforming it into salary an giving fiscal benefits to employees who voluntarily invest it into their pension funds.
Maria Teresa Cometto

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