Supplementary Pension Schemes in Italy: Features, Development and Opportunities for Workers

The portfolio effect of pension reforms: evidence from Italy

“…Bottazzi et al (2006) refer to lack of financial education and lack of information on pension matters as a reason for the poor savings response to pension reforms. Cesari et al (2008) point out that discontinuous careers and limited labour market participation account also for the low take-up of pension funds among young workers, and women. Finally, due to the high cost of annuities, most Italian households consider life insurance contracts as a financial investment rather than as an insurance contract to protect against longevity risk 10 .…”

Pension reform in Italy: Description and evaluation

“…One of these is tax benefi ts, particularly signifi cant in occupational pension plans, where workers can get tax benefi ts for their contributions and also for company contributions. 23 However, tax benefi ts should not be the only incentive, as they alone cannot make up for the lack of optimality, 24 and other benefi ts could be included as compensation for old members. 25 Many analysts argue that it is necessary to continue with reforms in order to face the demographic changes, preventing the benefi ts of the fi rst reforms from disappearing, 26 as Italy is affected by an ageing population 27 and, moreover, many workers continue to overestimate the future level of public pensions.…”

Retirement saving and the payout phase

“…Presumably this information shortfall also reflects the general uncertainty caused by the protracted reform process, which has made more difficult and burdensome for savers to obtain information on how the new pension system works. See Cesari, Grande and Panetta (2008), updating the estimates in Bottazzi, Jappelli and Padula (2006). 9 Gustman and Steinmeier (2004).…”

“…14 The importance of keeping pension funds' total costs low has been emphasized, among others, by the Turner Report, which argues that, against reasonable expectations of long-term returns, annual charges of 1.5 percent (not at all uncommon in many countries) are high enough to represent a 11 Choi et al (2004). 12 According to simulations carried out by Cesari, Grande and Panetta (2008) for Italian DC pension funds, the benefit of the employer's contribution provided by the recent pension fund law is substantial: over a 30-year accumulation period, even on the most unfavourable assumptions, the return obtained by a pension fund member each year is at least 0.6 percentage pointshigher, and his final accrued balance more than 6 percent higher, than that obtained by a non-member. Tax advantages are also very large: after 30 contribution years the final balance accrued to a younger worker joining a pension fund would be almost 24 percent greater than that accrued to a worker who invests directly in financial assets; more than half of the advantage would be due to the deductibility of contributions and another third to the preferential taxation of benefits.…”

“…After 30 years, workers who can invest at an annual cost of 0.5 percent per annum could, for the same savings level, enjoy a final accrued balance more than 30 percent higher than that enjoyed by workers facing an annual cost of 1.5 percent. For a detailed analysis of the impact of pension fund costs on workers' gains from joining a pension fund (based on the parameters of the Italian DC pension funds), see Cesari, Grande and Panetta (2008). rational disincentive to voluntary private savings and undermine the case for providing earningsrelated pensions in a funded rather than a PAYG form.…”