Pension Funds: The State of Complementary Retirement Provision in Italy

The Covip Report 2023: Overview of Pension Funds in Italy

On June 19, the Covip Report for the year 2023 was presented, providing insights into the current status and future prospects of pension funds in Italy.
At the end of 2023, there were 10.7 million positions in complementary pension schemes, marking a 3.9% increase compared to 2022.
This accounts for 36.9% of the workforce being enrolled in pension funds.

Growth Trends and Demographics

Notably, there were 4.0 million active positions in negotiated funds, with a 5.5% growth from the previous year.
A significant portion of new enrollees came from contractual memberships specified in certain collective agreements.
In the public sector, enrollments continued to rise, partly due to the introduction of silent consent for workers hired since 2019.

However, gender distribution remains skewed, with women representing only 38.3% of total enrollees.
The age distribution shows a prevalence of middle-aged and near-retirement individuals, with 47.8% aged between 35 and 54, 32.9% aged 55 or above, and 19.3% below 35 years.

Financial Insights

Accumulated resources in complementary forms amounted to 224.4 billion, marking a 9.1% increase from the previous year.
This growth was driven by investments results and the balance between contributions and benefits, representing 10.8% of the GDP and 4% of the financial assets held by Italian households.

Regarding fund management, contributions amounted to 19.2 billion, with outflows of 11.6 billion.
Pension benefits disbursed included both capital (4.5 billion) and annuities (400 million).
Additionally, 1.9 billion in early temporary supplementary pensions (RITA) were paid out, with redemptions totaling 2 billion and advances 2.5 billion.

Challenges and Recommendations

The Covip report acknowledges the resilience of the complementary pension system in the face of recent challenges, evident in enrollment numbers, contributions, assets, and returns.
However, structural factors necessitate further development, notably demographic dynamics.
Capitalization-based pension schemes offer a buffer against risks affecting the public system, enhancing the likelihood of higher overall pension benefits.

Flexibility elements like the choice of investment profile and the option to access savings before retirement, as in the case of the RITA, present advantages.
However, access to complementary pensions remains limited, highlighting the importance of addressing pension inclusion for younger cohorts and women.

The Covip suggests restructuring the tax advantages for members, considering transforming tax deductibility into an entry contribution under specific conditions.
Adjusting deductibility limits to carry forward unused amounts to subsequent years could facilitate irregular contributors, encouraging wider participation.

Furthermore, expanding benefit options for a more personalized retirement phase, including income drawdown possibilities that partly release funds while reinvesting the remainder, is recommended.
Reflecting on the effectiveness of automatic mechanisms in guiding member decisions, a life-cycle default approach could enhance pension income adequacy and boost equity investments to support pension funds and businesses.