ITALY - Italy's multi-employer contractual pension funds underperformed the benchmark by 100 bp in 2003, registering returns of 5% on average.
In a year that saw equity markets lock in strong gains, Italian funds’ heavily concentrated fixed income portfolios saw much of the value to be had pass them by.
“That’s a big issue,” said Watson Wyatt economist Mirko Cardinale.
“In Italy you have a big state pension, which is linked to the Italian GDP, and that would actually suggest that in the remainder of your portfolio you should diversify away from Italian assets, because you are implicitly investing so much in the Italian economy through the first pillar. “In that respect, I don’t think pension funds have thought of this.”
Contractual pension funds invest on average 34.7% in Italian fixed income in a balanced mandate. Part of the problem stems from the monocomparto design, which is a one size fits all approach to asset allocation for all members.
For schemes which have adopted the multicomparto design, Cardinale said: “It’s still essentially a choice between four to five balanced profiles. It’s not a real investment choice about life cycle asset allocation.”
Speaking before parliament, Lucio Francario, president of the Italian pension regulator Covip emphasised that in order to avoid a “new poverty” the level of complementary pension coverage must increase.
With state pensions benefits set to decline from 67.3% of final salary in 2000 to just 48.1% in 2050, complementary pension funds are going to need to attract a great many more participants than the current 6.2% of the labour force.
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