New fiscal incentives for Italian pension funds are expected shortly. They should be included in the ‘DPEF’, the government’s economic and financial budget for the next three years, or else in the ‘Legge Finanziaria’, the annual public budget for 2000. Without incentives, the pace of Italian pension funds’ growth will be very slow, as it emerges from the first annual report of Covip (Commissione di vigilanza dei fondi pensione), the Italian pensions authority.
According to Covip, currently there are 870 pension funds in Italy: 774 ‘old’ ones operating before the new law, and 96 authorised under the new rules. Pension funds’ members almost amount to 1m, of these 391,000 are with the ‘new’ funds.
In particular, around 381,000 employees are members of the four closed national pension funds, created by trade union agreements. These are: Fonchim (chemicals and pharmaceuticals), Fondenergia (energy), Quadri Fiat (executives in Fiat group) and Cometa (mechanical).
So far, in these industrial sectors only 25% of the employees have de-cided to contribute to their pension funds. That is, apart from Quadri Fiat, where the fund is promoted by the executives themselves and Fondenergia, which has participation of 54.5%.
Very few young employees entered a ‘closed’ pension fund: only 25% members are under 30 years of age. Covip says there are many reasons for this: on the one hand, young employees aer not considering their future pension provision; and on the other, they are reluctant to hand the old TFR (trattamento di fine rapporto) over to the new pension fund, as under the new rules, younger employees contributing to a pension fund have to invest the whole TFR there. This is a sum equal to almost 7% of the salary accumulated by the company for its employees to hand over when they decide to leave.
Nowadays, with Italian inflation at 1.6%, TFR guarantees a return of 2.7% a year, which is attractive compared to current bond yields. Young employees like to think of TFR as a useful cash sum, in case they lose their job and cannot find another one for a while.
Open ended pension funds - promoted directly by banks, insurance companies and asset management companies, only attracted 20,000 clients by 31 January of this year. The number is very small because these were only sold from the end of 1998. However, as Covip points out in its report, open funds can only be subscribed to by the self-employed, professionals or by employees working in industries where no closed pension funds exist and where there are no agreements to create them.
A peculiarity of Italian pension funds is that they invest mainly in bonds, notwithstanding they should look to the long term. The four closed pension funds mentioned are ‘monocomparto’, so members cannot choose among different investment strategies.
The asset allocation decided by the funds’ administrators is 70% in bonds (after four years, these funds could change to become ‘multi-comparto’, with different investment options for their members). The open pension funds are 49% bond-oriented, 27% are ‘balanced’ and only 21% specialise in equities (and 3% are ‘flexible’). The average annual expense ratio for open pension funds is 1.5-2.5%, according to Covip.
In its report, the authority remarks that its resources are not sufficient to accomplish its task. Recently the Italian parliament decided to widen Covip’s duties and responsibilities, but did not increase its budget. As a result, many of Covip’s civil servants are now quitting in favour of higher paid jobs. Maria Teresa Cometto

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