The Italian pension fund industry is gathering momentum as assets under management begin to show growth, the new Italian government reveals its commitment to opening up the country’s pension fund industry and even housewives join the rush to secure their retirement provision.
Many in the industry feel that the election of Silvio Berlusconi’s right wing/centre coalition government could signal competition and freedom of choice between open and closed pension funds being allowed, even despite potential union conflict, as the leftwing nature of the country’s major unions means that they remain opposed to open funds.
The long-awaited transfer of the legally required contract termination indemnity payments, trattamento di fine rapporto (TFR), from book reserves to pension funds was one of the commitments of Berlusconi’s Forza Italia party during the run-up to the election in May. Transfer of the TFR monies has been an objective of the last several Italian governments but all have failed to introduce any legislation in this area.
Total assets under management within Italy’s sector-wide and open pension funds increased by an impressive 124% from the end of 1999 to the end of 2000, though from a very low base, according to the Italian pension fund industry regulatory body, Commissione di vigilanza sui fondi pensione (COVIP). Closed-end funds now manage some Lire 2.3trn (€1.88bn), an increase over the year of 119%, whilst the open funds have done even better, recording an annual increase of 136% to Lire1trn.
But COVIP reports that investment strategies are still conservative among the four largest closed-end funds, with equities barely accounting for 25% of asset allocations. However, as of April this year, only 12 of the 43 closed funds are actually fully operational, although 23 received final authorisation from COVIP last year. A further 20 are still awaiting the green light to begin collecting contributions.
In total, the sector funds, including those without full authorisation, covered some 885,000 members at the end of 2000 from a potential 13m employees.
So, there is clearly room for further growth, since, according to estimates of the Italian treasury, there are 12m employees in the private sector alongside 6m self-employed, with only 891,000 employees and 218,000 businesses covered by a closed or open fund arrangement. But the number of people contributing to pension funds is growing steadily.
On a somewhat lighter but no less significant note, the Fondo Pensione Complementare per la Famiglia (FPCF), the novel and potentially huge pension fund instigated by an Italian housewives’ organisation, tended offers for managers and custody services.
The fact that the Italians are taking pensions seriously is further demonstrated by the involvement of the government sponsored Mefop, an organisation designed to monitor and assist in the development of the country’s pension fund industry. Mefop is 70% owned by the Italian treasury and 30% owned by pension funds themselves.
Performance measurement has become one of its main concerns and in July it organised an industry wide seminar to not only discuss, but lay down the framework to set in place a performance measurement and tracking methodology that will cover the country’s entire pension fund network. Strategic development, annuities and training are other key areas that Mefop is active in.