The pension fund market - Italy (2023)

1.2 The global market

Pension funds, consisting of defined benefit (***) plans, have been the primary means of meeting the retirement needs of an aging population.

The sector's revenue consists of contributions, investment income, and net sales of securities as the prinicpal items.

Overall revenue trends from **** to **** show a generally increasing trend, albeit with some fluctuations. The average annual percentage growth in revenue over the period is about*.** percent; thus, it can be said that revenue has grown by this percentage rate every year. Specifically, in ****, revenue growth is estimated to be *.*% over ****.

Regarding profits, an average annual loss is estimated to be around *.* percent over the period ****-****.

Low birth rates and increased access to health care are increasing the pension burden for most industrialized countries. The proportion of adults over age ** in the world's largest economies has reached an unprecedented level, putting pressure on both public and private pension plans. Countries such as Japan and South Korea are particularly concerned about aging populations andinsufficient pension contributions.

Global Pension Fund Market World, ****-****, in trillions of dollars ibisworld.com

by ****, North America accounts for the largest market share in the pension fund industry, with the United States and Canada in particular being among the ...

1.3 The Italian market

After the fall that occurred in ****, caused by frequent fluctuations in financial markets, the first six months of **** showed a significant recovery for all forms of supplementary pension plans, with an increase in both the number of members and the amount of resources allocated.

Resources under management and contributions

Specifically on resources, they totaled *** billion euros at the end of September **** compared to *** billion in December ****, a positive change of +*.* percent. Slightly more than half of the increase was due to the improvement in the prices of portfolio securities; the remaining increase was due to contribution flows net of outflows.

As for contributions collected by negotiated funds, open-end funds, and Individual Pension Plans (***), during the first six months of ****, they amounted to *.* billion euros, marking a growth of +*.* percent compared to the same period in ****. This increase is seen in all the pension forms just mentioned.

(***)

Resources allocated to benefits Italy, December ****-September ****, in billions of euros covip.it

According to the dossier published by the Covip (***), in the first six months of **** all types of pension forms and sub-funds recorded positive results on average, especially in the management schemes with greater equity exposure, allowing them to recover, at least ...

1.4 Impact of covid-19 and the Russian-Ukrainian conflict

Impact of covid-**

The impact of the covid-** pandemic on pension funds in Italy was significant, especially in the first quarter of the year when negative average returns were recorded.

In the first quarter, negotiated funds recorded a loss of *.* percent, open-end funds *.* percent, and branch III Individual Pension Plans (***) **.* percent. The drop in yields was caused by the decline in government bonds and stock markets, which lost between ** and ** percent, and the increase in market volatility to levels not seen since the **** financial crisis.

Despite the strong impact on the short term, considering a longer and more appropriate time horizon for ud an assessment of pension savings returns, the impact of the pandemic on the financial cycle appears more limited. In the ten years from the beginning of **** to the end of ****, the average annual compound return was *.* percent for negotiated funds , *.* percent for open-end funds and class III PIPs, and *.* percent for class I management schemes. . When the last three months are added to the ten years, average compound annual returns fall to * percent for negotiated and open-end funds and *.* for class III PIPs ; they remain at *.* percent for class I products.

In April, markets recorded a slight recovery ...

2.1 Demand in Italy

At the end of the third quarter of ****, there were about **.* million positions outstanding with supplementary pension forms , * percent more than at the end of ****. These positions, which also include those of those who simultaneously join several forms, correspond to a total membership of *.* million (***).

Of the **.** million positions, ** percent relate to employees, whose number has grown by *.* percent since ****.

Number of outstanding positions Italy, December ****-September ****, in millions covip.co.uk

The breakdown of positions by type of pension form taken out is shown below for September ****. Looking at the chart below shows that the negotiated form, contractual in nature, has the most outstanding positions (***).

There are ***,*** more positions in the negotiated funds than at the end of the previous year (***).

In market pension forms, there are **,*** more positions in open-ended funds (***); at the end of September, the total outstanding positions in these forms amounted to *.*** million and *.*** million, respectively.

Breakdown of positions by type of pension form Italy, ****, % covip.co.uk

2.2 Demand drivers

The choice to subscribe to a pension fund is implemented with the aim of obtaining of additional annuity at the end of working life. The primary goal concerns maintaining one's standard of living in old age, but there are also additional drivers that influence this choice.

Favorable taxation - All payments are deductible for a maximum annual importyo of €*,***.**. To calculate this amount, the subscriber's voluntary contributions plus those of the employer are added together. Deposits arising from severance pay (***) are not included in this calculation; Lower taxable income - Deductibility lowers the taxes you pay each year. For example, if you have an income of **,*** euros and pay an annual fee of *,*** euros to a pension fund, the taxable income on which you pay taxes drops to **,*** euros. In practice, applying the IRPEF rate for this income, which is ** percent, the tax savings is *** euros (***). Low taxation on returns- Another tax advantage is the taxation on returns of pension funds. They are taxed at a reduced rate of **.* percent versus ** percent for equities Better taxation than severance pay - When you redeem the pension fund, in addition to the taxation on returns, there are taxes to be paid on the ...

2.3 The geographical distribution of demand

GDP-based pension spending includes public pension benefits provided to citizens. These benefits are typically related to individuals' age and past employment income. Pension spending as a percentage of GDP is an indicator that shows how much a country spends on pensions relative to its total economic output. It includes old-age pensions, disability pensions, survivor pensions and other types of pension benefits. This indicator is crucial for assessing the financial sustainability of national pension systems and their ability to support the elderly population.

A high ratio of pension spending to GDP may indicate potential fiscal sustainability problems, especially if the country has a rapidly aging population. This is because a higher proportion of older people could mean higher spending on pensions, which can put pressure on public finances.

From the depiction below, it can be seen that there are regions where this ratio is higher, and these are mainly concentrated in southern Italy, particularly Calabria, Sicily and Sardinia with the highest ratios. This figure probably reflects a higher incidence of the older population in the aforementioned territories and thus, the need for greater allocation of public pension resources.

At the same time, as far as supplementary pension provision in Italy is concerned, ...

3.1 The market structure

To understand the structure of the pension fund market, reference is made to the different types of pension forms.

Looking at the breakdown among the three types, we see a prevalence of the number of Individual Pension Plans, which make up almost half(***) of the total number of existing funds in Italy. Immediately following are open-ended funds and, finally, negotiated funds , which are based on collective agreements and are generally open to workers in a particular sector or company.

Breakdown of the different forms of supplementary pensions Italy, ****, % covip.it

Negotiated funds

Regarding the type of negotiated fund, as of the end of ****, activities regarding this category are entrusted to ** specialized managers, based on *** management mandates or agreements.

Regarding the types of managers, the share of Italian enterprises has increased compared to ****, but they still remain lower in percentage than enterprises in other countries.

For Italian firms, the largest market share is occupied by Asset Management Companies (***).

Trading funds - Breakdown by type of manager Italy, ****, % covip.it

Open-end funds

The market structure regarding the type of open-end funds has remained stable compared to ****: the number of open-end pension funds is ** and there are ** companies active in the sector. The degree ...

3.2 The value chain

The main steps inherent in value-creating pension funds are outlined below.

Investment management is highlighted as a crucial stage in generating the returns needed to pay retirement benefits.

3.3 The main players

The following are some of the most important Pension Funds in Italy, which are referable to the different types of pension forms.

Cometa Fund: an Italian negotiated pension fund, which represents one of the main forms of supplementary pensions in the country. It is intended for workers in the engineering, plant installation and related industries in Italy. Its main purpose is to provide a supplementary pension to member workers, supplementing the public pension provided by INPS. The fund is managed by a consortium of asset management companies, and its governance is represented by a board of directors made up of representatives of both workers and employers.

Fonchim Fund: a negotiated pension fund in Italy specifically for workers in the chemical, pharmaceutical, rubber, plastics, and fiber industries. Its main purpose is to provide a supplementary pension for workers in the sector, supplementing the basic pension provided by the Italian public pension system. It is managed by a board of directors representing both workers and employers. Investment management is entrusted to selected professional managers.

Fontech Fund: a negotiated pension fund in Italy specifically for workers in the information and communication technology (***) sector. This includes companies operating in information technology, telecommunications, electronics, and software ...

4.1 Supply analysis

Supplementary pension provision, governed by Legislative Decree No. *** of December *, ****, represents the second pillar of the pension system whose purpose is to supplement the compulsory or first-pillar basic pension provision. It aims to help ensure that the worker has an adequate level of pension protection for the future, along with the benefits guaranteed by the basic public system.

Supplementary pension provision is based on a system of pension forms responsible for collecting retirement savings through which, at the end of working life, a supplementary pension can be provided.

The employee's individual position results from the contributions made by the employee and employer to the supplementary pension form and the returns obtained, net of costs, through the investment in the financial markets of those contributions. It is, of course, linked not only to the amount of the contributions paid and the returns obtained, but also to the length of the payout period.

The recipients of pension funds are:

employees, both private and public; working members and employees of production and labor cooperative companies; and self-employed workers and freelancers persons performing unpaid work in connection with family responsibilities; workers with other types of contracts (***).

The following constitute supplementary pension forms: negotiated funds, open ...

4.2 Costs for members of supplementary pension schemes

The costs that members of pension forms have to bear directly or indirectly over the years have a significant impact on final benefits. Since ****, COVIP has introduced thesynthetic cost indicator(***) to measure in a comparable way thecost burden of different pension forms and express, in a simple and immediate way, thepercentage incidence of costs incurred annually by a member on his or her accumulated individual position.

The SAI is calculated for all pension forms and for each investment option according to a standardized estimation methodology defined by COVIP. The indicator is calculated considering different periods of participation (***); estimates are made assuming the payment of an annual contribution of *,*** euros and an annual return of * percent. The effect of spreading fixed expenses over an accumulating amount causes the SAI to decrease as the time horizon increases.

Structural characteristics of supplementary pension forms affect the levels of SAI. In negotiated funds, which are established as nonprofit organizations, the value of members' individual positions is burdened by the administrative and financial costs actually incurred by the fund. In market forms, on the other hand, the costs borne by the members are determined in advance by the instituting company and also include remuneration for business ...

4.3 Composition of investments

Of the total ***.* billion euros of resources allocated to benefits at the end of ****, the actual investments directly referable to supplementary pension schemes amount to *** billion euros, compared to ***.* billion euros in ****.

Referring to the main components, bonds account for **.* percent of the total, equities make up ** percent, and UCITS shares **.* percent.

Among government issuers, Italian government bonds make up **.* percent of the total, and are down from **.* percent in ****. In general, Government Securities (***) constitute the largest share of investments. This is followed by Equity Securities and other Debt Securities.

Composition of investments Italy, ****, % covip.it

5.1 The legislation

In Italy, supplementary pensions are regulated by several laws and decrees that set the regulatory framework for pension funds and other retirement savings plans.

The following are some of the main laws on supplementary pensions.

Law Aug. *, ****, No. *** (***): This law introduced major reforms to the Italian pension system, including supplementary pensions. It established the basis for pension funds and forms of retirement savings. Legislative Decree No. *** of April **, ****: Known as the law that introduced severance pay (***) into pension funds, this decree established the procedures for the allocation of TFR to pension funds. Legislative Decree No. *** of December *, ****: This legislative decree was a key moment in the regulation of pension funds in Italy. It defined the rules for the establishment, management, supervision and operation of pension funds. Law No. *** of August **, ****: This law introduced changes to the regulation of pension funds, particularly with regard to the transferability of severance pay and other provisions related to supplementary pensions. Law No. *** of December **, ****: Known as the "Maroni Reform," this introduced a number of changes to the pension system, including aspects related to supplementary pensions.

5.1 The incentives

Italian law provides various forms of incentives in the area of supplementary pensions; the main regulatory interventions pertaining to this issue are listed below.

Law Dec. **, ****, No. *** (***): This law introduced tax incentives for contributions paid to negotiated and individual pension funds, including tax deductibility of contributions and preferential taxation of benefits. Law No. *** of December **, **** (***): It further developed tax incentives for supplementary pension plans, including aspects related to the tax treatment of pension fund returns. Law No. *** of December **, **** (***): Introduced changes to pension fund regulations, including tax aspects. Law No. *** of July **, ****: Provided additional tax incentives for supplementary pension funds, including some changes to the taxation of benefits.

6.1 Segmentation

• Cometa
• Fonchin
• Fontech
• Poste Vita spa
• Credit Agricole spa