Italy faces lingering decline in local pension funds support

On the 06/16/21 at 7:41AM


Adrien Paredes-Vanheule

Domestic investments from Italian supplementary pension schemes have plummeted more than ten percent over the 2016-2020 period.
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The number of pension funds in Italy keeps declining. According to the 2020 statistics released on Monday, the Italian pension system supervisor Commissione di Vigilanza sui Fondi Pensione (Covip) tallied 372 schemes at the end of 2020. The figure almost halved since 1999 when some 739 Italian pension funds were numbered.

Among the 372 pension schemes identified by Covip in 2020 were 33 contractual pension funds, 42 open pension funds, 71 new individual pension plans provided through life insurance contracts based on a 2005 legislative decree (PIPs) and 226 pre-existing pension funds.

Overall, the Italian pension fund sector covered more than ten million Italian individuals – including 8.4 million in supplementary pension funds (or 33% of the total workforce in Italy) – and had over €290bn in assets under management at the end of last year.

Covip reported that resources gathered by all supplementary pension schemes in Italy amounted to €198bn as of end 2020, up 6.7% year-on-year, which forms 12% of Italy’s growth domestic product and 4.1% of Italian families’ financial assets.

Some €16.5bn contributions flowed into Italian pension schemes last year with all scheme types benefiting from higher inflows. The local pension system regulator calculated that the average contribution per member was €2,740 over the year 2020.

However, Covip pointed out that about 2.3 million members of Italian supplementary pension funds (or 27.4%) did not contribute in 2020. Furthermore, around one million members have not contributed to their schemes for at least five years.

“The phenomenon has a significant impact on the mechanism of contractual adhesions in supplementary pension funds, particularly regarding sectors such as construction, characterised by high employment discontinuity,” noted the regulator.

A total of €8.6bn was pulled from Italian supplementary pension schemes, including €3.4bn pension benefits distributed, €1.7bn redemptions recorded and €1.8bn advances paid.

Less invested in the Italian economy

Italian pension funds’ asset allocation in 2020 suggests they were holding 56.1% bonds (vs. 57.9% in 2019), of which 17.5% Italian government bonds (vs. 20.6% in 2019), 19.6% equities (vs. 18.9% in 2019) and 15.5% investment fund shares (vs. 14.8% in 2019) at the end of 2020. Deposits accounted for 6.6% of their allocation. As for allocation to direct and indirect real estate investments, which Covip says is mostly seen in pre-existing funds, it formed around 2% of assets, stable year-on -year.

According to the pension watchdog’s data, the value of domestic investments made by Italian supplementary pension schemes was worth €38.6bn, down from €40.4bn in 2019. Thus, in 2020, domestic investments formed 23.8% of the pension funds’ total allocation, down from 26.9% at the end of 2019, primarily due to an Italian govies’ cut by the funds.

Still, in local investments, govies formed the largest share of assets (€28.4bn out of €38.6bn) held by the Italian supplementary pension schemes in 2020. The Italian pension schemes invested €3.2bn in Italian corporate bonds, €3bn in real estate and €1.4bn in Italian equities while €2.1bn domestic investments were held through Ucits investment funds.

Italian government debt may have attracted numerous investors over last year but Covip's report casts doubts upon any excitement from the local pension funds for the asset class as the decreasing exposure trend in Italian govies has been on for the last five years.

“In the five-year period from 2016 to 2020, domestic investments compared to the total of investments recorded a decline of about ten percentage points, from 34% to 23.8%. The reduction is almost entirely explained by the drop of Italian government bond holdings from 26.6% in 2016 to 17.5% in 2020, and in absolute value, from €31.2bn to €28.4bn,” noted Covip.

Excluding Italian govies, the regulator acknowledged that the the contribution of the local supplementary pension schemes to the Italian economy remains limited overall and suffers international comparison. Covip highlighted the small size of the Italian equity market as well as the limited development of private equity and debt markets at national level as reasons why Italy’s share remains marginal in mainstream global equity benchmarks.

Conversely, foreign investments of Italian supplementary pension funds totalled €110.5bn (or 68.3% of total assets invested), up 2.5% yoy. This increase largely relied on upper exposures to foreign corporate bonds and equities.

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