The Open Problems of Italian Complementary Social Security

1. Introduction

At the end of 2006 Italian complementary social security arrangements were characterised by at least four weaknesses:
1. a low relationship between the actual number of members of the various complementary pension schemes and the level of their potential members (enrolment rate), apparent fruit of a ‘distorted early maturity’ of the sector2;
2. an insufficient unitary flow of financing attributable both to the limited size of contractually provided for payments, in the case of membership among employees, and to modest fiscal incentives granted to all members in the contributory phase;
3. an inefficient market structure, which translates into a lack of competition between the two kinds of pension funds with collective membership (closed PFs and some OPFs) and a growing competition between these pension funds and other complementary pension schemes with individual membership (OPFs and iPPs)3; (4) a governance of single social security schemes so inadequate as to fail to guarantee either real openness or uniformity of protection for members.
As is known, the new regulations provided by the Legge delega 243/04 and its linked D. Lgs 252/05, modified by the recent finance Act for 2007, came into force on 1 January 2007. The aim of this work, however, is to answer the following question: do the regulatory innovations promise effective solutions to the four weaknesses present today in Italian complementary social security?
In section 2 it is stated that the Legge delega 243/04, proposed in December 2001 and only approved by Parliament in July 2004 effectively aims at producing incentives for a more widespread participation in the second social security pillar and at strengthening sources of financing of PFs and IPPs through the provision of active or ‘tacit’ procedures for assigning the flows of end of service lump sums to social security schemes on the part of private sector employees. In section 3 it is shown that by increasing competition between the various social security schemes, and by trying to improve the governance of the sector, this act also pursues the implied objective of eliminating the most inefficient PFs and IPPs, in terms of organisation and management, from the social security market.
Yet the same sections 2 and 3 reveal that the specific solutions, offered by Legge delega 243/04 and particularly by the related D. Lgs 252/05 prove so limited as to generate new problems or worsen problems that have already been present for some time in Italian complementary social security4.
In Section 4 shows that the changes introduced by the recent Finance Act and by related decrees of January 2007, fail to resolve most of the evident problems and add still more. This Act has the merit of bringing into force in January 2007 almost all the new regulations which D. Lgs 252/05 had unexpectedly postponed till 1 January 2008. It also eliminates the distorting guarantee fund, which again the D. Lgs 252/05 had provided for bank credits to businesses as substitutes for financing previously ensured by flows from end of service lump sums. It alters, however, the configuration of the social security system set up by the Dini Act of 1995, superimposing a public repartition fund called “Fund for the allocation of end of service lump sums to private sector employees” on the second social security pillar and managed by Inps (now to be known as FondInpsR). Moreover, it broadens the brief of the ‘residual complementary pension scheme’ at Inps (now to be known as FondInpsC) provided for by D. Lgs. 252/05. In the Conclusions section the limits of the new regulatory framework are summed up, and some of the conditions required for an acceptable functioning of Italian complementary social security are clearly stated.

Sections 2 and 3 of the present work reproduce, albeit with several modifications, sections 6 and 7 of the essay “Complementary social security in Italy, an introductory outline” used as the introduction to the volume Complementary Social Security in Italy (by M. Messori, il Mulino, 2006). I thank the ‘il Mulino’ publishing house for allowing me to use these sections.
Marcello Messori:Professor at the Department of Economics and Institutions, Faculty of Economics, university of Rome ‘Tor Vergata’.
2 Empirical verification of this statement and of the considerations sub (2) is offered in Messori (2006ibid), sections 4 and 5. Updates on this are available in The two subjects (3) and (4) are dealt with in Messori (2006ibid). From this point on the terms ‘complementary social security’, ‘complementary pension schemes’ or ‘social security schemes’ will be used to indicate the totality of the various kinds of pension funds (PFs) — contractual pension funds closed PFs, open pension funds (OPFs), pre-existing pension funds (pre-existing PFs) — and individual pension plans (IPPs).
3 It follows that unlike what occurs in many countries with developed complementary social security, the Italian social security system has almost wiped out the distinction between the second and third pillars (see also Section 2).
4 It is noted that the Legge delega 243/04 also changed substantial aspects of the first public pillar and cut into the relationship between the first and second pillar. This is not considered here.

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