Recent developments in supplementary pension schemes
Published: 27 June 1998
In June 1998, more than one year on from the first experiences in supplementary occupational pension schemes, it was possible to carry out a first assessment of the development of pension funds in Italy.
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In June 1998, more than one year on from the first experiences in supplementary occupational pension schemes, it was possible to carry out a first assessment of the development of pension funds in Italy.
The situation before the reform
Supplementary occupational pension schemes in Italy have only recently become an issue of debate and public interest. Indeed, they have attracted attention only as a result of the radical reform - still in progress - of the compulsory state pensions system. Prior to the changes made to the legal framework, supplementary pension schemes were confined to specific categories or companies, and took the form of fringe benefits rather than of welfare provision in the strict sense. Clear examples are provided by the banking sector (where the system dates back to the 1930s) and, more recently, by certain multinational companies. In the case of the banking sector, this experience of supplementary pension schemes represented a feature of a bargaining unit which has traditionally been characterised by particularly favourable conditions. In the case of the multinationals, the schemes essentially involved the transfer into Italy of the system used by the parent company.
Before the reform, the most common form of supplementary provision in Italy were company pension funds, which thus concerned only limited numbers of workers. Moreover, the resources of these supplementary pension schemes were never invested outside the company, so that pension funds could not be classified as institutional investors. The contrast with other social security systems, European and otherwise, is obvious, especially as far as the role played by pensions funds in financial markets is concerned.
The stages of the reform
The pensions reform of 1992 (the so-called "Amato reform") was a major step towards the creation of a homogeneous system which, at least potentially, could provide all workers, both employees and self-employed, with supplementary pension coverage. An enabling clause in the reform law led to a legislative decree in 1993 which, for the first time in Italy, regulated "forms of supplementary pensions". This decree - subsequently modified and integrated by a second act (the so-called "Dini reform") - marked a watershed, since it defined the measures, namely pension funds, whereby workers would be guaranteed a "second provident pillar" in addition to the public one (the "first pillar"), which had been considerably depleted by spending cuts and budget squeezes.
It is important to stress that the law established certain of the main features which supplementary pension schemes have assumed - or rather, will assume - in Italy;
the provision, in the standard model, that supplementary coverage should be introduced through collective bargaining, and therefore by industry-wide collective agreement, although space should be left for different contractual levels;
a contributions system for employees with fixed and certain costs;
the use of the end-of-service allowance (Trattamento di fine rapporto, Tfr) for financing the funds;
tax concessions (albeit modest);
participation by contributors to the fund in its administration and control bodies;
management of the funds exclusively by professionals expressly selected for this purpose; and
the exclusively provident purpose of the funds.
The first results
After a long period of gestation, the secondary legal framework based on the legislative decree of 1993 is now largely in place, and a substantial number of pension schemes have received authorisation (IT9705205F).
Consequently, it is now possible, in mid-1998, to begin assessment of certain aspects of the implementation of the law, especially as regards collective bargaining. From the beginning, the social partners leaned towards the creation of sectoral pension funds at the national level. Both trade unions and employers agreed on this issue, since it enhanced centralisation and counteracted "localist" tendencies (IT9705109N) that continue to be present. The table below sets out brief details of major schemes created by collective agreements in the period up to May 1998.
| Sector (employers' body) | Pension fund name | Potential subscribers | Expected starting date |
|---|---|---|---|
| Chemicals (Federchimica and Farmindustria) | Fonchim | 170,000 | Already started |
| Oil | Fondenergia | 45,000 | Already started |
| Metalworking (Confindustria) | Cometa | 1,200,000 | 1 July 1998 |
| Metalworking (Confapi) | Fondapi | 400,000 | 1 July 1998 |
| Public local companies - water, gas, electric power (Federgasacqua e Federelettrica) | Pegaso | - | By the end of 1998 |
| Commerce and trade (Confcommercio) | - | 1,500,000 | 1 July 1998 |
| Food | Alifond | 390,000 | 1 January 1999 |
Italy's newly-instituted system of supplementary social security is thus dominated by large national funds catering, in the case of the metalworking industry, to as many as a million subscribers (IT9711139N). Indeed, the majority of the pension funds created cover more than 100,000 beneficiaries. An interesting feature is the tendency towards:.
the incorporation in one fund of similar sectors. An example is provided by the agreement signed on 28 July 1997 setting up a scheme in the small and medium-sized chemicals and rubber/plastics industries. The conclusion of this accord states that trade unions and employers "agree on the objective of creating an intersectoral fund for all workers in small and medium-sized companies contractually represented by union federations affiliated to Cgil, Cisl and Uil and by the sectoral employers' organisations belonging to Confapi" (Confapi is the employers' confederation for small enterprises); or
the outright inclusion by numerically larger sectors of smaller allied ones. An example is the agreement to institute a pension fund for the metalworking industry (named Cometa), which also envisages participation by workers in other sectors whose industry-wide agreements have been signed by the sectoral unions that agreed to Cometa's creation.
Thus the reference point for the aggregation of sectors in the same fund may be the employers' association, as in the former case, or the trade union organisations, as in the latter, but the result is the same. The cases mentioned are only two examples, but the pattern is the same in all sectors.
An important exception to the general trend towards national funds is represented by the pensions fund for workers in the chemicals industry (Fonchim). The agreement setting up this fund, in fact, expressly allows company-level occupational social security funds to join the fund, as long as these guarantee contributions, and therefore benefits, of the same standard as those provided by the national fund. The "flexible" nature of Fonchimis increased by its provision for higher-rate contributions to be negotiated at the company-level. Although this represents a certain degree of openness to second-level bargaining, it should be pointed out that this can take place only on the condition that the conclusion of the agreement, or the date on which the company fund is created, is prior to national-level bargaining taking place.
Also of interest is the agreement on supplementary social security in the tertiary, distribution and services sector signed by Confcommercio, which states that the pensions contribution can be fixed nationally at a minimum level (0.55% of pay), which second-level bargaining may then increase.
In conclusion, mention should be made of a third type of supplementary pensions, besides funds established through collective bargaining and pre-existing ones: so-called "open-ended" funds. The timid measures introduced in 1995 (IT9702103N), which allowed collective subscription to open-ended funds, run by financial institutions, have not been taken up by dialogue between the social partners, in that monitoring of bargaining - at least at the national level - does not reveal the introduction of any schemes involving this sort of fund.
Commentary
Recent developments in supplementary pension schemes in Italy seem to suggest some relevant features of social partners' strategy on pension funds. First of all, the choice of supporting national pension funds appears to be more political than economic-managerial in character, given that the "critical mass" which allows a fair balance to be struck between operating costs and return on capital can be achieved even with reference groups that do not necessarily amount to hundreds of thousands of units. In the event that pension funds should become an important element of bargaining in future, this preference for national-level schemes could help maintain the importance of the sectoral level, against a general tendency towards "decentralisation".
Secondly, the absence of any interest in open-ended funds demonstrates the importance for the social partners of supervising directly the operation of the pensions fund - an issue which was already crucial at the time of the first implementation of the reform (IT9705205F). In fact, open-ended funds - set up unilaterally by financial institutions like banks, insurance agencies, mutual fund management companies, and investment companies - do not allow, except indirectly, the participation in the pension scheme bodies which is deemed essential by the unions and employers' organisations. For this reason, It is still too early for predictions to be made concerning the effective use, in collective bargaining, of these kind of funds run by financial and insurance operators. It should be stressed, however, that they offer opportunities for "atypical" bargaining (ie between employer and workers without union involvement) in contexts characterised by the absence of trade union representation. Therefore, they may represent an opportunity for extending supplementary pension coverage to non-unionised contexts.
Finally, the proportions of pay devoted to financing supplementary pension schemes still seem to be limited (on average about 1% of the annual gross paybill), maybe due to the preference for using wage increases to improve "immediate" pay, since the perception of its growth is easier and clearer for workers. If, however, supplementary pension schemes must become a significant component of pension and financial systems, this attitude should probably be reconsidered (Fabrizio Marino and Michele Seassaro, Fondazione Regionale Pietro Seveso).
Eurofound recommends citing this publication in the following way.
Eurofound (1998), Recent developments in supplementary pension schemes, article.
