Italy’s second-pillar pension funds must now make a decisive paradigm shift, improving their internal processes and managing risks as well as competition, the industry’s regulator has said.

In its 2014 annual report, pension fund regulator Covip (Commissione Vigilanza sui Fondi Pensione) revealed that, while membership in complementary or second-pillar pension schemes climbed last year, the number of people who had stopped contributing rose by a similar amount. 

Presenting the report, Covip president Francesco Massicci said: “The present moment calls for a decisive paradigm shift on the part of the funds.” 

This shift is necessary, he said, in terms of their internal organisational processes, their capacity to manage risks and deal with competition, changing their investment policies towards an allocation that better suits changes in the market and finding a size that is in the interests of all scheme members. 

At the end of 2014, complementary pension schemes covered 6.5m people in Italy, or 29.4% of workers, he said.

This compares with the 6.3m people covered, which was reported a year earlier. 

Membership in the complementary pensions system grew by 5.4% last year due to the increase of individual membership of PIPs (individual pension plans) and open pension funds. 

However, the number of pension scheme members who had stopped contributions climbed last year to around 1.6m people, Covip reported – up from 1.4m in 2013. 

This puts the percentage of scheme members no longer contributing at 22.3%, up from 22% the year before. 

The number of complementary pension funds fell by 13 during 2014, totalling 496 at the end of the year, and consisting of 38 company pension schemes, 56 open pension funds, 78 individual pension plans (PIP) and 323 pre-existing pension funds and Fondinps – part of the national social security institution INPS. 

Almost 50% of all pension scheme members are covered by the 11 complementary pension funds with membership of more than 100,000, Covip reported. 

At the other end of the scale, there were 268 pension funds, mainly pre-existing funds, which had fewer than 1,000 members, and these covered just 1% of all people enrolled in pension funds. 

“Therefore, there is still room to increase concentration in the sector,” Massicci said. 

“Measures to consolidate could help to achieve more efficiently organised structures.”

Massicci put much of the growth in pension scheme membership down to sales networks for PIPs, which were spread throughout the country, with sales remunerated based on the volume of products placed on the market. 

But he said there were signs of new dynamism within company pension schemes, with a significant increase in membership expected in the construction industry as a result of a newly introduced auto-enrolment regime. 

Total assets within the second-pillar pension system reached €131bn at the end of 2014, up 12% from the year before.

Contributions increased by €600m to €13bn, with €5.3bn of this coming from TFR, or severance pay, Covip said, adding that 82% of this TFR money had flowed into company and pre-existing pension funds. 

“In 2014,” Massicci said, “pension schemes reported positive returns, benefiting from good progress on the main financial market and helped by very expansive monetary policy and the improved economic conditions globally, despite differences regionally.”

Company and open pension schemes returned 7.3% and 7.5%, respectively, last year, with new PIPs returning 6.8% for class 2 plans, and 2.9% for class 1 plans. 

Asset allocation at the pension funds changed little over the last year. 

Massicci said investment in direct and indirect real estate, and closed-end funds, was done almost exclusively by pre-existing funds, and pointed out that only 35% of assets, or €34.5bn, were invested in Italy, with €28bn of this in government bonds.

Investments in securities issued by Italian companies came to only 3% of pension fund assets, with just 0.8% of assets invested in Italian equities.

“There is room, therefore, for pension funds to make a greater contribution to the financing of domestic enterprises and, more generally, to medium and long-term investment projects in our country,” the regulator said.

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