Transcript Dr. Daniele Franco

International Seminar on Pensions
14 June 2001, Jerusalem, Israel
Daniele Franco
ITALY:
THE ROLE OF
FUNDING
ITALY’S CRITICAL POSITION
PENSION REFORM: MAJOR POLICY ISSUE
A) High Pension spending:
16.0% of GDP in 1999
High incidence of pensions
on total social spending (70%)
B) Low fertility rate:1.2 children per
woman of childbearing age
POP65/pop15-64:
1990
2010
2030
21%
30%
48%
C) High public debt (110% of GDP)
 LARGE GENERATIONAL IMBALANCE
 NEED FOR LARGER REFORMS
A LONG REFORM PROCESS
PENSION REFORM NECESSARY:

to ensure fiscal consolidation
and long-term sustainability

to increase low participation
rates

to support non-elderly groups
REFORM PROCESS FROM 1992:
long, incremental, unfinished
ROLE OF FUNDING: LIMITED,
BUT GROWING
DEVELOPMENTS UP TO 1950s
EARLY HISTORY:
PUBLIC, FUNDED,
INDUSTRY-BASED SCHEMES;
PAYROLL TAXES
MAIN SCHEME - PRIVATE SECTOR
EMPLOYEES:

1898 VOLUNTARY

1919 COMPULSORY
(OLD AGE AND DISABILITY)

1942 SURVIVORS BENEFITS
AFTER WW2:
CRISIS OF FUNDED SCHEMES
SHIFT TO PAY-AS-YOU-GO
GUARANTEED MINIMUM PENSION
LATE 1950s TO 1960s:
EXTENSION OF COVERAGE
EXTENSION OF PENSION COVERAGE:
FARMERS (1957)
ARTISANS (1959)
OTHER SELF-EMPLOYED (1966)
WORK-DISABLED CITIZENS (1966)
LOW INCOME ELDERLY (1969)
1965: SENIORITY PENSIONS
(35 YEARS CONTRIBUTIONS)
FOR PRIVATE SECTOR WORKERS
1969: PRIVATE SECTOR EMPLOYEES
FROM CONTRIBUTION-BASED
FORMULA TO EARNINGS-RELATED
1969: FORMAL BENEFIT INDEXATION
1960s TO MID 1970s: EXPANSION
OF WELFARE FUNCTIONS
A) NEW BENEFITS
(POOR ELDERLY AND DISABLED)
ALSO, TO SUPPORT FARMERS AND
POOR REGIONS:
B) EXTENSIVE USE OF DISABILITY
PENSIONS (SUBSTITUTE FOR
UNEMPLOYMENT BENEFITS;
POLITICAL PATRONAGE)
C) EASY ACCESS TO MINIMUM
PENSIONS
ALSO, BREAKDOWN IN
CONTRIBUTION-BENEFITS LINK:
D) MINIMUM & MAXIMUM PENSIONS,
SCHEMES WITH DIFFERENT RULES,
DIFFERENT INDEXATION RULES
1980s: RATIONALISATION
AND FURTHER EXTENSION
FIRST STEPS TOWARDS REFORM
1983
MEANS TESTING FOR MINIMUM
AND DISABILITY PENSIONS
1984
ELIGIBILITY REQUIREMENTS FOR
DISABILITY TIGHTENED
1984
UNIFORM INDEXATION SYSTEM
BUT:
A) NO LARGE SCALE REFORM
B) GRADUAL INCREASE IN BENEFITS
FOR SELF EMPLOYED
C) FREQUENT CHANGES IN RULES 
DISPARITIES DEPENDING ON
YEAR OF RETIREMENT
THE SITUATION IN
THE EARLY 1990s
RISING EXPENDITURE (CHART 1):
5.0 % OF GDP 1960
7.4
1970
10.2
1980
14.9
1992
1960-95
ELIGIBILITY RATIO = + 60%
DEPENDENCY RATIO = + 60%
TRANSFER RATIO = +15%
PENSION EXP./GDP EXPECTED TO INCREASE
FURTHER: CLOSE TO 25% BY 2030
( DEPENDENCY & TRANSFER RATIOS)
TREASURY (1994):
“EQUILIBRIUM CONTRIBUTION RATE” FOR
PRIVATE SECTOR EMPLOYEES
44 %
1995
50
2010
60
2025.
REASONS FOR HIGH EXPENDITURE
A) LOW RETIREMENT AGE
(60/55 FOR PRIVATE SECTOR
MALE/FEMALE EMPLOYEES)
B) HIGH ACCRUAL RATE (2% OF
EARNINGS FOR YEAR OF CONTRIB.)
C) RELEVANT EARNINGS: LAST 5 YEARS
IN PRIVATE SECTOR, FINAL SALARY IN
PUBLIC SECTOR
40 YEAR CONTRIBUTION  ABOUT 75%
OF FINAL WAGE
D) ELIGIBILITY TO OLD-AGE PENSION:
15 YEARS OF CONTRIBUTION
E) INDEXATION TO EARNINGS OF
EMPLOYED WORKERS
F) USE OF PENSIONS TO SUPPORT SOME
SECTORS AND REGIONS
THE NEED FOR REFORM
REFORM URGENT ALSO FOR:
A) LABOUR MARKET
REASONS
DIFFERENT RULES   JOB MOBILITY
INCENTIVE TO RETIRE EARLY
B) EQUITY REASONS
MESSY DISTRIBUTIVE EFFECTS
(UNEVEN RATES OF RETURN)
LIMITED RESOURCES FOR OTHER
SOCIAL POLICIES
SHARP IMPROVEMENT IN CONDITIONS
OF ELDERLY: POVERTY RATE =
GENERAL POPULATION RATE
THE 1992 REFORM - 1
EXCHANGE RATE CRISIS AND NEED TO
CURB DEFICIT: PENSION SYSTEM
EXTENSIVELY REFORMED
A)  RETIREMENT AGE. PRIVATE
SECTOR EMPLOYEES: WOMEN
FROM 55  60; MEN 60  65
B)
“PENSIONABLE” EARNINGS:
LAST 5  LAST 10 YEARS;
YOUNG WORKERS: WHOLE
WORKING LIFE
C) ENTITLEMENT TO OLD-AGE
PENSION: FROM 15 TO 20 YEARS
OF CONTRIBUTIONS
D) INDEXATION: FROM WAGE TO
PRICE DYNAMICS
E)
SENIORITY PENSION FOR
PUBLIC SECTOR EMPLOYEES:
FROM 20/25 TO 35 YEARS OF
CONTRIBUTIONS
THE 1992 REFORM - 2
EFFECTS OF REFORM (+ TEMPORARY
FREEZE ON INDEXATION):
A) 25/30% OF PENSION LIABILITIES
CANCELLED:  EXPECTED EXPEND.
B) GRADUAL HARMONISATION
OF PENSION RULES
C) STRONGER CONTRIBUTIONBENEFITS LINK
BUT:
A) SENIORITY PENSIONS REDUCE
EFFECTS OF INCREASE IN
RETIREMENT AGE
B) PENSION EXP./GDP STILL EXPECTED
TO INCREASE
THE 1995 REFORM - 1
NEW MAJOR REFORM IN 1995
OBJECTIVES:
A) REMOVE SENIORITY PENSIONS AND
IMPROVE EXPENDITURE CONTROL
B)
REDUCE DISTORTIONS IN LABOUR
MARKET (BY LINKING PENSIONS
TO INDIVIDUAL CONTRIBUTIONS)
C) IMPROVE HORIZONTAL EQUITY
(HARMONISE RULES; REMOVE
ADVANTAGES FOR WORKERS
WITH DYNAMIC CAREERS)

FROM DEFINED BENEFITS TO
DEFINED CONTRIBUTION

VIRTUAL FUNDING
THE 1995 REFORM - 2
NEW RULES:
A) OLD-AGE PENSION RELATED TO
LIFE-TIME CONTRIBUTIONS
(CAPITALISED AT GDP GROWTH RATE)
AND TO RETIREMENT AGE
(LIFE EXPECTANCY)
CONTRIBUTIONS * AGE-RELATED
COEFFICIENT  ANNUITY
B) FLEXIBLE RETIREMENT AGE:
FROM 57 TO 65 WITH ACTUARIAL
DISCOUNT (PROVIDED PENSION  1.2
“MINIMUM PENSION”)
C) SENIORITY PENSIONS
GRADUALLY ABOLISHED
D) SAME RULES FOR ALL WORKERS
CRITICAL ASPECTS:
EXPENDITURE IN THE TRANSITION
PENSION EXPENDIT.  16% GDP IN 1999
TREASURY PROJECT.:
+ 1.4% BY 2015
+ 1.6% BY 2025
THEN DECLINE
INPS 1998-2025: EQUILIBR. CONTR. RATE
PRIV. SECT. EMPLOYEES: 45%48.5
SELF-EMPLOYED:
19.4%33.9
16.7%30.0
FURTHER INCREASES IN CONTRIBUTION
RATES OR GENERAL TAXATION (47% GDP)
 NOT FEASIBLE
INTERNAL MARKET, GLOBALISATION
  FACTORS MOBILITY
 TAX DEGRADATION - COMPETITION
TREND TOWARDS LOWER TAX RATES
CRITICAL ASPECTS:
SYSTEM VULNERABILITY
CONTRIBUTION-BENEFITS LINK FOR
INDIVIDUALS, BUT SYSTEM
VULNERABLE TO DEMOGRAPHIC &
ECON. SHOCKS
•  BIRTH RATE:
NO EFFECTS ON PENSIONS
•  LIFE EXPECTANCY: DELAYED
EFFECTS ONLY ON NEW PENSIONS
(VIA COEFFICIENTS)
•  GDP GROWTH: DELAYED
EFFECTS ONLY ON NEW PENSIONS
(VIA NEW CONTRIBUTIONS)
•  EARNINGS/GDP: DELAYED
EFFECTS ONLY ON NEW PENSIONS
(VIA COEFFICIENTS)
CRITICAL ASPECTS:
COMPOSITION OF CUTS
REFORMS RELIES PRIMARILY ON
REDUCING TRANSFER RATIO
AVERAGE PENSION/PER CAPITA GDP:
15.5% 1998-2015  10.1% IN 2050
LIMITED REDUCTIONS IN
NUMBER OF PENSIONS
PENSIONS/EMPLOYMENT:
92% IN 1998  130% IN 2050
A) LOW RETIREMENT AGE (57-65):
COEFFICIENTS? LABOUR DEMAND?
B) (PARTIAL) PRICE INDEXATION:
SUSTAINABLE OVER LONG
RETIREMENT PERIODS?
CRITICAL ASPECTS:
EXPECTED MICRO EFFECTS
ACTUARIAL CONTRIBUTION-BENEFITS
LINK:  INCENTIVE TO WORK/DELAY
RETIREMENT
BUT: LINK SHOULD BE TRANSPARENT
AND PERCEIVED AS STABLE
ACTUALLY:
• LONG TRANSITION
• EXPECT FURTHER CHANGES
(VULNERABILITY)
• LACK OF TRANSPARENCY
(NO FORMULA)
• EFFECTIVE CONTRIBUTION RATES 
IMPUTED RATES
POLICY OPTIONS:
ACCELERATE TRANSITION
A) FASTER TRANSITION
TO NEW RULES
(DON’T APPLY TO WORKERS WITH
 18 YEARS OF CONTRIB. IN 1995;
WORKERS WITH 18 YEARS: APPLY
ONLY TO NEW CONTRIB.)
B) FASTER REMOVAL
OF SENIORITY PENSIONS
NO EFFECTS ON STRUCTURE OF
SYSTEM, BUT POLITICALLY
SENSITIVE (OLDER WORKERS)
IMPORTANT TO FINANCE TRANSITION
TO FUNDING
POLICY OPTIONS:
CHANGE 1995 PENSION REGIME
A) SHIFT IN RETIREMENT BRACKET
(eg: FROM 57-65 TO 62-70)
B) STEEPER CONVERSION COEFFICIENTS
C) MORE FREQUENT REVISIONS OF
COEFFICIENTS (NOW: 10 YEARS)
D) ADDITIONAL FACTORS CONSIDERD
IN REVISIONS OF COEFFICIENTS
E)  COEFFICIENTS + ADJUSTMENT TO
REAL GDP & DEMOGRAPHICECONOMIC CHANGES
A & B:  RETIREMENT AGE
C, D & E: FASTER ADJUSTMENT TO
SHOCKS
POLICY OPTIONS:
 FUNDING AND  PAYG
CONTRIBUTION RATES
TOTAL CONTRIB. RATES TO PAYG AND
FUNDED PILLARS:  40%
ASSUMING LONG CAREERS (25-65) &
3% REAL NET RETURN ON FUNDS:
PENSION / FINAL WAGE  100%
 MARGINS TO  REPLACEMENT RATE
10% CONTR. RATE  REPL. RATE 75%
OBSTACLES:
A) SLOW DEVELOPMENT OF FUNDS
B) BUDGETARY PROBLEMS
C) NEED TO ENSURE  RETIREMENT
AGE
NEED TO INCREASE
RETIREMENT AGE
ACTUAL AVERAGE RETIREMENT AGE IN
1995:
MALES
60 YEARS
FEMALES
57 YEARS
(1997: 36% OF EXPENDIT. TO  65 YEARS)
A)
SUPPLY SIDE
CHANGE IN RETIREMENT BRACKET
 INCENTIVES TO RETIRE LATER
 FLEXIBILITY (PART-TIME)
B)
DEMAND SIDE: LABOUR MARKET
CHANGE IN LABOUR COST
TRAINING
SUPPLEMENTARY FUNDS
LIMITED ROLE OF FUNDING IN ITALY:
 COLLAPSE OF FUNDS AFTER WW2
 LACK OF TAX AND LEGAL
FRAMEWORK UP TO 1993
 EXTENSIVE DEVELOPMENT
OF PAYG
 SEVERANCE-PAY FUNDS
 LITTLE DEMAND AND LITTLE
RESOURCES FOR
SUPPLEMENTARY PENSIONS
1990s: CONSENSUS TO DEVELOP FUNDS
SEVERANCE-PAY FUNDS
7.4 % OF MONTHLY EARNINGS TO
SEVERANCE-PAY FUNDS
(of which 0.5 % to insurance fund)
RETURN: 1.5 % + 0.75 * INFLATION
RATE
BENEFITS PAID OUT WHEN LEAVING
EMPLOYER
EMPLOYERS: CHEAP SOURCE OF
FINANCE
WORKERS: SOURCE OF LIQUIDITY IN
UNEMPLOYMENT SPELLS
CONTRIBUTIONS (PRIVATE SECTOR) 
1 % OF GDP
FUNDS  10 % OF GDP
NEW LEGISLATION
STRATEGY TO DEVELOP SECOND
PILLAR: SEVERANCE-PAY
+ ADDITIONAL CONTRIBUTIONS 
SUPPLEMENTARY FUNDS
GRADUAL PROCESS: MEMBERSHIP
COMPULSORY ONLY FOR NEW
ENTRANTS
TWO TYPES OF FUNDS:
(i) CONTRACTUAL (CLOSED)
(ii) OPEN
DEFINED CONTRIBUTIONS
TAXATION: E - T - T
CONTRACTUAL FUNDS
FUNDS SET UP BY AGREEMENTS
BETWEEN EMPLOYERS &
EMPLOYEES AT COMPANY OR
INDUSTRY LEVEL
SELF-EMPLOYED ASSOCIATIONS
CAN START FUNDS
FUNDS INDEPENDENT FROM
COMPANIES
EXTERNAL MANAGEMENT OF
ASSETS (BANKS / INSURANCE
COMPANIES / OTHER FINANCIAL
INSTITUTIONS)
OPEN FUNDS
FUNDS SET UP BY BANKS,
INSURANCE COMPANIES, OTHER
FINANCIAL INSTITUTIONS
FUNDS INDEPENDENT FROM
PARENT COMPANIES
INDIVIDUAL OR COLLECTIVE
MEMBERSHIP
CAN MANAGE ASSETS DIRECTLY
OR VIA FINANCIAL
INSTITUTIONS
SUPERVISION
FUNDS TO BE AUTHORISED BY
COVIP (PENSION SUPERVISORY
BOARD)
SUPERVISION BY COVIP + BANK
OF ITALY AND INSURANCE
COMPANIES SUPERVISORY
BOARD
COVIP EVALUATE
IMPLEMENTATION OF
TRANSPARENCY CRITERIA
COVIP COLLECT AND PUBLISH
DATA
BENEFITS
AT LEAST 50% OF CAPITAL AT
RETIREMENT TO BE CONVERTED
INTO ANNUITY
ANNUITIES TO BE PAID BY
(i) LIFE-INSURANCE COMPANIES OR
(ii) PENSION FUND (BUT NEED REINSURANCE CONTRACT FOR
DEMOGRAPHIC RISK)
CHARACTERISTICS OF
ANNUITIES TO BE DETERMINED BY
PENSION FUNDS
FUND MANAGEMENT
CRITERIA
1) PORTFOLIO DIVERSIFICATION
2) MINIMISE TRANSACTION AND
MANAGEMENT COSTS
3) MAXIMISE NET RETURNS
CANNOT HAVE:
(i)  15% OF ASSETS IN SINGLE
ISSUER
(ii)  20% OF ASSETS IN COMPANIES
RELATED TO MEMBERS (30%
FOR INDUSTRY FUNDS)
(iii)  10% OF SHARES ON THE
MARKET OR CONTROL ISSUER
(iv)  20% OF ASSETS IN CASH
TAX RULES
• CONTRIBUTIONS
contributions deductible up to 12% of
annual salary or 5,000 Euro (but
severance-pay contributions at least 50%
of total contributions)
• RETURNS
reduced tax rate on returns (11% instead of
12,5%)
• BENEFITS
no taxation on benefits attributable to
returns from capital;
benefits attributable to capital component
are subject to separate taxation (rate
depends on years of work)
TAX RULES
Pension Funds
(DC)
Severance
Payments
Bond
Investments
CONTRIBUTIONS
employer and
employee total
contributions are
deductible up to
the maximum of
12% of annual
salary or 5,000
Euro
no tax
investment
comes from
savings, after
personal income
tax
RETURNS
reduced tax rate reduced tax rate
on returns
on accrued
(11% instead of
interest
12,5%);
(11% instead of
a negative result
12,5%)
in one year can
be deducted from
future tax
obligations
BENEFITS
no taxation on
no taxation on no tax on capital
returns from
returns from
or annuity at
capital;
capital;
maturity
benefits
benefits
attributable
attributable
to capital
to capital
component are
component are
subject to
subject to
separate taxation separate taxation
tax rate on
returns equal to
12,5%
PROBLEMATIC ASPECTS - 1
(1) LONG PROCEDURES TO START
FUNDS
(2) SEVERANCE-PAY:
EMPLOYERS LOSE CHEAP
FUNDING
EMPLOYEES LOSE LIQUIDITY
(3) MODEST TAX INCENTIVES
(4) LIMITED FREEDOM OF CHOICE
FOR EMPLOYEES (TRADE-UNION
INFLUENCE)
(5) YOUNG WORKERS PROBABLY
UNDERESTIMATE ISSUE; OLDER
HAVE SIZEABLE PENSIONS
PROBLEMATIC ASPECTS - 2
(6) UNEMPLOYED WORKERS
CANNOT CONTINUE
CONTRIBUTING
(7) INCREASING MOBILITY
(8) LACK OF INSURANCE FOR
MANY SELF-EMPLOYED
WORKERS, PART-TIMERS, ECC.
(9) SUPERVISION: OVERLAPPING
AUTHORITIES?
INSTITUTIONAL
INVESTORS’ PORTFOLIOS
(1998 data unless otherwise indicated)
Italy
Germany
France
Spain
Netherlands
UK
US
1998
1999
Bonds
78
68
62
58
56
46
20
39
Shares
19
29
32
36
13
49
74
58
Deposits and cash
3
3
6
6
31
5
6
3
100
100
100
100
100
100
100
100
Unconsolidated assets
80
98
70
116
69
156
214
219
Consolidated assets
69
80
Total
Memorandum items (as a
percentage of GDP):
Percentage shares of institutional investors'
total net assets
Investment funds
43
44
44
43
61
10
12
27
Insurance companies
17
17
51
57
36
36
49
20
Pension funds
7
5
5
-
3
53
39
39
Other institutions
33
34
-
-
-
1
-
14
INSTITUTIONAL INVESTORS:
net fund-raising and assets under management
(billions of lire and, in brackets, percentage of GDP)
End of period stocks
Percentage composition
1999
2000
1999
2000
Investment funds
920,311
(43%)
871,188
(39%)
43.1
39.7
Insurance companies
355,264
(17%)
415,145
(18%)
16.6
18.9
Pension funds
141,239
(7%)
148,114
(7%)
6.6
6.8
Portofolio management
services
716,985
(33%)
759,234
(34%)
33.6
34.6
Total …
2,133,799
(99%)
2,193,681
(97%)
100
100
Consolidated total …
1,734,048
(81%)
1,704,050
(75%)
Pension funds in Italy: summary
data
(billions of Italian lire)
Funds
Members
31.03.01 31.12.00 31.12.99
Benefits
2000/1999
2000/1999
End 2000
%
%
End 2000
New pension funds
Contractual pension funds
Licensed to conduct activity
23
23
6
782,821
2,305
Licensed only to enroll subscribers
20
19
27
102,830
-
Total
43
42
33
885,651
Licensed to conduct activity
84
85
79
223,032
1,068
Licensed to establish
14
14
9
-
-
Total
98
99
88
223,032
63.6
1,068
136.3
141
141
121
1,108,683
32.4
3,373
124.0
COVIP jurisdiction
418
417
579,600
40,788
Legally incorporated
398
397
556,077
40,465
Other funds
20
20
23,523
323
Within banks
151
152
100,000
14,000
8
8
4,295
516
Total
577
577
683,895
55,304
Grand total
718
718
1,792,578
58,677
26.3
2,305
118.7
Open pension funds
Total numbers New pension funds
Old Pension Funds
Within insurance companies
PENSION FUNDS: ASSETS
(billions of lire; in brackets millions of euros)
1999
Social
2000
Pension Funds
Insurance
Schemes
Old
New
Funds
Funds
Cash and deposits
23,458
(12,115)
1,079
(557)
94
(49)
Bonds
11,532
(5,956)
27.699
(14,305)
of which: Government bonds
9,125
(4,713)
Pension Funds
Insurance
Schemes
Old
New
Funds
Funds
24,631
(12,721)
25,814
(13,332)
1,593
(823)
210
(109)
897
(463)
40,128
(20,724)
11,743
(6,065)
28,573 2,007 42,324
(14,757) (1,037) (21,858)
12,013
(6,204)
…
(…)
21,138
(10,917)
9,312
(4,809)
11,469
(5,923)
…
(…)
20,781
(10.733)
988
(510)
10,779
(5,567)
347
(179)
12,113
(6,256)
1,088
(562)
11,747
(6,067)
776
(401)
13,610
(7,029)
8,216
(4,243)
9,291
(4,798)
169
(88)
17,676
(9,129)
6,195
((3,199)
9,849
(5,086)
379
(196)
16,423
(8,482)
39,717
(20,512)
6,973
(3,601)
(-)
46,690
(24,114)
39,868
(20,590)
8,271
(4,272)
(-)
48,139
(24,862)
Total … 83,911
55,821
(28,829)
1,507
(778)
141,239
(72,944)
84,708
(43,748)
60,033 3,373 148,114
(31,004) (1,742) (76,495)
Shares
Loans and other financial
assets
Real estate
Social
(43,336)
Total
Total
27,618
(14,263)
Old Pension Funds: Summary
Data
1999
Number of funds
2000
417
417
573,256
579,600
Old age and disability
pensions
79,522
80,920
Survivors’ pensions
27,637
27,894
Contributions (billions lire)
3,310
3,532
Benefits (billions lire)
Pensions
Lump-sum
2,830
1,124
1,706
2,679
1,170
1,509
38,452
40,788
6,4
6,7
10,7
10,8
56,5
59,2
Members
Assets (billions lire)
(millions of lire)
Average contributions per
member
Average benefits per
pensioner
Average assets per
member
Old Pension Funds:
types of funds
(year 2000)
Category
Defined
Defined
Contribution
benefit
Mixed
Total
86,510 579,600
409,930
83,160
2,627
427
477
3,532
1.,253
356
301
1,910
worker
882
71
102
1,055
severance-pay
492
0
74
567
21,838
29,043
30,039
80,920
Survivors’ pensions
7,904
9,257
10,733
27,894
Benefits (billions lire)
1,593
609
476
2,679
277
545
347
1,170
1,316
64
129
1,509
Members
Contributions (billions lire)
employer
Old age and disability
pensions
pensions
lump sum
Old Pension Funds:
assets by type and activity
(year 2000 - billions of Lire)
Type
Defined
Defined
contribution
benefit
Mixed
Total
Assets
Cash
589
464
103
1157
3.
Bonds
5.625
5.846
4.386
15.857
52.
Shares
951
756
423
2.131
7,
Investment fund units
1.746
427
867
3.040
10,
Real estate
1.849
2.061
1.143
50.53
16,
Real estate companies
854
238
194
1.285
4,
Other assets
855
729
264
1.848
6,
12,469
10,521
7,380
30,371
100,
12.100
10.169
7.275
29.544
369
352
105
827
12.469
10.521
7.380
30.371
Total
Liabilities
Liabilities related to benefits
Other liabilities
Total
Contractual pension funds:
members and potential
members
(end of year 2000)
Funds
Members
Potential
members
%
Contractual pension funds licensed to conduct activity
23
782,821
6,194,347
Employees
18
767,696
2,354,347
32.6
Company and group funds
6
167,727
219,594
76.4
Funds managed on behalf of labour categories
2
441,651
1,185,000
37.3
Other funds
10
158,318
949,753
16.7
Self-employed
5
15,125
3,840,000
Contractual pension funds licensed only to enroll
subscribers
19
102,830
9,678,803
Employees
15
100,836
7,597,567
Self-employed
4
1,994
2,081,236
Total funds
42
885,651
13,073,150
Employees
33
868,532
9,151,914
Self-employed
9
17,119
3,921,236
Contractual pension funds geographically defined
4
61,718
630,000
Employees
3
60,531
577,000
Self-employed workers
1
1,187
53,000
Contractual Pension Schemes:
Average Contribution Rates
Young
workers
Older
workers
Employees
1.15%
1.15%
Employers
1.15%
1.15%
Severance-pay
contributions
6.91%
2.39%
Total
9.21%
4.69%
Main Contractual Funds
Composition of assets
(31.12.2000 – percentage points)
Fonchim
Cometa
Fondenergia
Quadri e
Capi Fiat
Fondo
dentisti
Total
Cash
5.8
1.3
5.4
6.6
32.6
3.8
Bonds
68.1
79.4
70.6
67.7
34.6
73.7
Shares
24.7
16.9
21.0
26.2
14.2
20.5
Other
1.4
2.4
2.9
-0.6
18.5
2.1
Total
100.0
100.0
100.0
100.0
100.0
100.0
Open Pension Funds: Assets
(31-12-2000 - percentage points)
Sharebased
Balanced
Bondbased
Total
Cash
10.4
11.5
13.9
11.5
Bonds
8.9
35.8
60.5
28.9
Shares
43.2
23.4
4.4
28.4
Investment
funds
36.4
29.4
20.4
30.8
Other
1.1
-0.2
0.8
0.5
Total
100.0
100.0
100.0
100.0
Age Distribution: Contractual
Pension Funds vs Social Insurance
Scheme of Private Sector Employees
Open Pension Funds
Structure of the Market
(31-12-2000)
Funds/Schemes
Members
Number
%
Open pension funds promoted by:
Insurance companies
35
43,181
19
3
43,774
19
Fund manag. companies
32
136,077
60
Total open funds
70
223,032
100
Share-based
64
107,480
48
Balanced
72
83,083
37
Bond-based
126
32,469
14
Total schemes of funds
260
223,032
100
Banks
Schemes
Age Distribution of Members: Open
Pension Funds vs Social Insurance
Schemes of Self-Employed Workers
Open Pension Funds: Asset
Composition and Age
Distribution of Members
Contractual and Open Funds:
rates of return
(percentage points)
Average
1999-2000
1999
2000
Contractual
funds
..
3.6
..
Open funds
24.0
2.9
12.9
Share-based
46.1
0.7
21.3
Balanced
19.8
4.5
11.9
Bond-based
4.4
5.9
5.2
Return on
severance-pay
funds
3.1
3.5
3.3
CONCLUSIONS - 1
A) USE OF SEVERANCE-PAY
CONTRIBUTIONS CORRECT, BUT
PROCESS SLOWER THAN EXPECTED
B) DEVELOPMENT OF FUNDING
SLOW WHEN (i) PAYG
CONTRIBUTIONS AND BENEFITS
VERY LARGE AND (ii) PUBLIC
FINANCE TIGHT
C) CLOSE LINK WITH PAYG REFORM:
DEVELOPMENT OF SUPPLEMENTARY
PENSIONS NECESSARY TO REFORM
PAYG, BUT PAYG REFORMS
NECESSARY TO ALLOW ROOM FOR
CONTRIBUTIONS AND TAX
INCENTIVES
CONCLUSIONS - 2
D) IS IT OPTIMAL TO COMBINE PAYG
DEFINED CONTRIBUTION PENSIONS
WITH FUNDED DEFINED
CONTRIBUTION PENSIONS?
E) POSITIVE MEMBERSHIP TREND
F) MAIN OPEN ISSUES: (i) PUBLIC
SECTOR FUNDS; (ii) FREEDOM OF
CHOICE OF FUNDS; (iii) SUPERVISION;
(iv) LENGTHY PROCEDURES
G) CAN EXPECT IMPORTANT CHANGES
IN CORPORATE GOVERNANCE
WHICH LESSONS FROM ITALY?
A) LATE REFORM  PAINFUL AND LESS
GRADUAL (EG  5 YEARS RETIR. AGE
OVER 8 YEARS)
B) LENGHTY REFORM PROCESS:
 UNCERTAINTY AND  PEOPLE
RETIRING EARLY ( EXPENDITURE)
C) DIFFERENT SCHEMES & RULES 
REFORMS HARDER
D) SPECIAL INTEREST GROUPS:
MIXED EXPERIENCE
* PUBLIC SECTOR WORKERS
ACCEPTED BIG CUTS;
* RETIREMENT AGE INCREASED
FAST;
* SENIORITY PENSIONS RETAINED
WHY PENSION EXPENDITURE IS
SO LARGE IN ITALY?
ITALY:
PENSION-BIASED SOCIAL
PROTECTION SYSTEM
OLD-AGE+SURVIVORS / TOTAL EXPEND.:
63% IN ITALY; 42% IN EU

INERTIAL EFFECTS OF DECISIONS
TAKEN IN 1950s AND 1960s
 SEGMENTATION OF SYSTEM:
SEGMENTED POLICY-MAKING
LOW DEPENDENCY SCHEMES
 HIGH RETURNS;
HIGH DEPENDENCY SCHEMES 
SUBSIDISED BY GOVERNMENT
 LACK OF ESTIMATES OF
LONG-TERM EFFECTS
WHY WAS THE REFORM
DELAYED UP TO 1992?
NEED FOR REFORM RECOGNISED IN
LATE1970S, NO ACTION UP TO 1992
 SHORT-TERM VIEW OF
BUDGETARY DEVELOPMENTS
 NO AGREEMENT ON
EXPENDITURE TRENDS
 NO AGREEMENT ON CHANGES:
FUNDING,
GENERAL REVENUE FINANCING
 SEGMENTATION OF SYSTEM:
UNEVEN BURDENS
 SIZE OF PENSION WEALTH
& NUMBER OF PENSIONERS
THE ROLE OF FORECASTS
ITALY: PROJECTIONS FROM PUBLIC
INSTITUTIONS ONLY IN LATE 80S
INITIALLY, OPTIMISTIC PROJECTIONS
RELIABILITY IMPROVED IN 1990S

FREQUENT CHANGES;
REVISIONS USUALLY UPWARD

PROJECTIONS INFLUENCED
REFORMS - PERHAPS POLITICAL
DECISIONS TO ACCELERATEPOSTPONE REFORMS
INFLUENCED FORECASTS
POLICY IMPLICATIONS:
 NEED REGULAR REVISIONS
 NEED ANALYSIS OF CHANGES
 AN INDEPENDENT AUTHORITY?
HAS POLICY-MAKING
CHANGED AFTER 1992? (1)
IMPORTANT CHANGES:
 FROM EXPENDITURE EXPANSION
TO EXPENDITURE REDUCTION
 MAIN ACTORS IN POLICY:
TREASURY AND PRIME MINISTER
 BEFORE 1992: ADVANTAGEOUS
RULES
FOR PUBLIC SECTOR EMPLOYEES
AND SELF-EMPLOYED
AFTER 1992: LOWER BURDEN FOR
PRIVATE SECTOR EMPLOYEES
 PRESSURE GROUPS:
FROM EMPLOYMENT TO
GENERATIONAL DIVISIONS
HAS POLICY-MAKING
CHANGED AFTER 1992? (2)

BUT:
REFORMS STILL INTRODUCED
WITHOUT PRELIMINARY WORK

NO GOVERNMENT DOCUMENTS
ABOUT NEED FOR REFORM,
OBJECTIVES, ETC.

INCREMENTAL APPROACH:
UNCERTAINTY ABOUT FURTHER
CHANGES IN PAYG SYSTEM +
SLOW DEVELOPMENT
OF FUNDING

UNEVEN BURDEN: PROTECT
VOCAL GROUPS
E.G. LOWER BURDEN ON
WORKERS
WITH LONG RECORDS
EMPLOYMENT RATES