Insurance: A Leading Player in the New Welfare

1. Introduction

As recently as last September, the ex Health Minister, Umberto Veronesi told the Corriere della Sera that boys born in 2007 have a life expectancy of 97 years, while that of girls is as much as 103. A fact, the internationally famous scientist explained, made possible by the enormous progress made by medical science.
If on the one hand we can’t but rejoice in Veronesi’s statement, on the other hand the news raises a series of questions, the first of which is how to ensure an adequate standard of living once the working cycle ends. The question brings up, in general terms, the future of public pensions in the decades to come, and more specifically the subject of the integrative pension, which without doubt constitutes one of the most urgent and important challenges for the political and economic agenda of our country.

2. Italy 2050

In order to have a realistic picture of the problem it isn’t necessary to refer to the demographic situation of the Italian population in 2100 when those born today will have passed the ninety years of age mark. Instead it is enough to stop at the projections for 2050. At the half way point of the current century, in fact, there will be, in Italy, 63 individuals over 65 years old to every 100 working people, counting all those between 15 and 64 as coming within the potentially active time. If we keep in mind that in 1950 the same ratio was 10 to 100 it is easy to understand how tomorrow’s young people will find it ever more difficult to produce an income and a development sufficient to guarantee an army of the elderly a decent pension. But that’s not all: in 2050 one Italian in seven will be over 80 years old, and 25% of these will be made up of men and women who are not self sufficient, a factor which significantly increases the social costs.

3. Towards a New ‘Welfare’

The size of the problem is such that in order to avoid a genuine crisis it is necessary to introduce a triple structural reform that has to rethink the social security system, the health system and the employment system. On the pension front, as we know, the legislature has set in motion a reform process introducing instruments and regulations concerning complementary social security, for the origins of which the reasons and objectives are known to everyone: the public pension system had accumulated a growing series of imbalances due to the concomitant tendencies toward an increase in the average length of life and the reduction in births, which in our country are accompanied by a low growth in employment and a large public deficit. The response of the public authorities is aimed at moving from a social security system centralized in a single compulsory public regime (the INPS pension) to a system based on three pillars: public pension (first pillar), redefined so as to guarantee a greater correlation between the contributions paid by workers and the benefits they receive in their retirement years; the collective integrative pension (second pillar), accumulated through participation in pension funds; individual integrative pension (third pillar), left to each worker’s savings choice.

4. Integrative Social Security and Financial Markets

Ten years after the start of the reform process, however, there continue to be serious delays in the development of pension funds, both in the cases of the Anglo Saxon countries and for economies institutionally and financially more like ours, such as France, Germany and Spain. By way of example it’s enough to consider that in Italy pension fund assets amount to only 3% of GDP, a much lower level than the European average and a long way below the 66% of the United Kingdom or the unattainable (at least for now) 110% of Switzerland. In our country the spread of integrative social security is particularly poor among the young, women, the self-employed, and the employees of small businesses, that is to say the categories who enjoy the least protection within the world of work. In this regard, it should be stressed that the slow performance of collective and individual pension funds can generate not only compensatory imbalances in the near future, but it also has immediate systemic consequences: the Italian delay actually puts limits on the articulation of the national capitals market. In countries where the second and third social security pillars spread quickly the local financial system was open to innovation, creating resources and operations such as private equity funds, and financing tools such as corporate bonds which stimulated the restructuring of the productive system.

5. The Cultural Limits of the Italian System

Up till now Italian workers have been rather reluctant to convert their Trattamento di Fine Rapporto (translator’s note: a payment from a severance indemnity scheme) into a private pension scheme: the main obstacle to the spread of this kind of social security is a cultural limit, i.e. the tendency toward uncritical and uninformed prudence. If we look at the statistics concerning who has subscribed to a collective fund or an IPP (Individual Pension Plan), we see that those who have recourse to integrative social security are mostly those families who are more able to gather, evaluate, and process information of a financial kind. This fact confirms the need to create, in the population, particularly the young, a greater knowledge of funds and a forward looking culture, in favour of long term planning and aware of risks, even those far into the future. While in northern European countries the need to increase the rates of financial education is seen as urgent and is the subject of ad hoc educational campaigns, in Italy there are still too many workers who over estimate the amount of public social security they will obtain at the moment of retirement, which will be less than 50% of their last wage.

Fausto Marchionni: Faculty of Economics, University of Turin and CEO — Director General Fondiaria-SAI, Turin

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