ITALY - The Italian government's efforts to stimulate the defined contribution (DC) sector by encouraging workers to transfer their final indemnity payments to pension funds could grind to a halt as employees remain unconvinced by the proposed system.
Despite several pension funds generating returns above the final indemnity payments funds (Tratta-mento Fine Rappporto/TFR), the prospects for the TFR reform, due in January 2008, remain bleak.
“A large percentage of workers are still opposed to the introduction of pension funds,” said Severo Lutrario, pensions expert with the Italian branch of the Association for the Taxation of Financial Transactions for the Aid of Citizens (ATTAC).
The reform, postponed to 2008 by the previous government, aims to stimulate the DC sector by seeing workers transfer their TFR to pension funds. Historically, payments were made by the empoyer into a TFR fund on the worker’s behalf.
A study by the Associazione Delle Casse Di Risparmio Italiana (ACRI) showed workers were wary of the change, with 61% of those up-to-date with the reform stating they would not transfer their TFR. Luigi Scimia, president of the pensions regulator COVIP, had claimed clarification and education would provide the key to building trust in pension funds.
However, Lutrario was not so optimistic: “A promotional campaign prior to the introduction of the reform does not have the prospects of making any significant impact.” He added that despite the energy and financial support thrown behind the pension fund for school employees – Espero – the fund was still a “total failure”.
A survey conducted by Italian newspaper Corriere della Sera revealed only 33 out of 304 investment options offered by open-ended pension funds consistently performed better than the TFR funds.
The social partners that run the political side of the closed pension funds have called for the TFR reform to be brought forward.
However, Lutrario said: “I do not believe Italy’s economy can afford the cost bringing the reform forward would bring about.”
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