The Open Problems of Italian Complementary Social Security
5. Conclusions
Analysis of the most recent evolution in regulations has shown the many limits to the Covip directives, to the Finance Act and to the consequent decrees from the Ministry of Employment. An opportunity to correct the many weak points of the D. Lgs. 252/05 has been lost, and Italian complementary social security arrangements have been made more problematic.
The Finance Act for 2007 particularly has not even tried to: extend the tacit enrolment mechanism to (some) employees: to increase the inadequate competition between the different kinds of collective membership PFs or to mitigate the excessive competition between these PFs and individual membership social security schemes: to modify the clear incongruities introduced into the governance of the various complementary pension schemes: to correct the excess use of proxy and the distorting actions in the tax area with regard to the contribution and capitalisation phase and, above all with regard to the payment of benefits phase42; to rectify the contradictions in the rules on early withdrawals and redemptions. Moreover the Finance Act did not bother to clear up the ambiguous passage in the D. Lgs. 252/05 relating to the need to allocate the lump sum flows of workers who had tacitly enrolled, the most prudent and guaranteed section of PFs (closed PFs or POPFs with collective enrolment) designated. As shown earlier (see Section 4), the regulations set these premises so that the yield expected from this section would prove less than that traditionally expected from the lump sum. Besides this the Finance Act (by creating FondInpsR) and the consequent decrees from the Minister of Employment made the enrolment procedures in complementary social security so confusing as to discourage private sector employees from an educated and thought out choice. In addition by strengthening, in a twisted manner, FondInpsC’s role, they concealed the fact that the public hand had entered into the second social security pillar, effectively introducing an implicit state guarantee as to minimum yields.
Normally such an inadequate regulation would demand further corrective action. The troubled legislative history of Italy’s young complementary social security system (at least five significant modifications and a plethora of minor actions in thirteen years) plus recent experiences demonstrate, however, that we are not talking about the most efficient life. The next elements to enter into the system of reforms of the public pillar begun in the Nineties are the demographic dynamic (the increase in life expectancy and the related ageing of the population) and employment uncertainty. These actually imply that every delay in the establishment of complementary social security will lead, in a future, more or less distant, to the presence of a cohort of retirees unable to maintain their standard of life and in danger of poverty. The hope for the future therefore, is that Italian complementary social security can supply solid pension support to ‘younger’ workers despite that numerous limits of the current regulations. To this end, it is imperative that these workers take part in complementary social security on a large scale and through informed, explicit and knowledgeable enrolment. For all of them it is first of all essential that they escape the worst alternative: being tacitly enrolled in the most prudent and guaranteed sections or in the residual pension scheme subject to high political risk. It is a matter of choosing he social security scheme and the financial section most appropriate to one’s needs and to one’s personal subjective or objective risk profile.
42 It should be noted however that though staying unchanged at 13%, in the capitalisation phase of complementary pension schemes, taxation will undergo an appreciable reduction in relative terms following the unification of rates on income and on the related move from 12.5% to 20% for financial long term assets. Not by chance have there been proposals to also increase pro quota the rates on capitalisation of pension schemes.
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Tags: complementary social security, financing flow, inefficient market structure, italian social security