Supplementary pensions, the virus slows down membership and erodes earnings

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Supplementary pensions under pressure. The virus has also put into crisis the negotiating funds which manage the collection for supplementary pensions and which in Italy are worth more than 40 billion euros.

To trace the balance of the situation is the Covip, the independent authority that has the task of supervising the proper functioning of the pension fund system in Italy and which sends an alarm signal on the supplementary pension system.

Pension funds, falling funding

In the first quarter, i average returns they were generally negative and of greater magnitude as the share of the portfolio invested in equity securities increased. Net of management costs and taxes, the negotiating funds have lost 5.2%; 7.5 and 12.1, respectively, the open-end funds and the class III Pips, characterized on average by a greater equity exposure. This is what can be read in Covip’s annual report which specifies that for the separate operations of class I, which account for the assets at historical cost and not at market values ​​and whose returns depend largely on the coupons collected on the securities held, the result was positive (0.4%). But what worries most is the collection. “In the current context of greater economic and social difficulty, the risk is that the crisis will not only reduce the propensity to join in the face of other urgent needs that have arisen, but may even lead to workers leaving the system, perhaps because they have become unemployed, or reduce participation, for example due to the need to face a drop in income“.

Decreased contributions and increased requests for benefits

In the next months “it is reasonable to expect, also in relation to the extent of the fall in economic activity, decrease in contributions and an increase in requests for services“. This is what we read in Covip’s annual report which states that “the actual dimensions of these phenomena remain under observation by the Supervisory Authority, in order to assess their impact on the individual funds and on the system as a whole and take the most appropriate measures to contain their effects or favor their recovery“. From a quantitative point of view, the Authority specifies, “the available data, relating to the first months of the year, are not yet exhaustive of the impact that the crisis induced by the epidemiological emergency can determine, for example, on the continuity of contribution payments or on a greater use of the fund’s services“.

Subscribers to supplementary funds increased

In the face of these not exactly encouraging data, it must be said that the number of members is increasing. At the end of 2019, the total number of members of the supplementary pension scheme was around 8.3 million, up 4% on the previous year, for a coverage rate of 31.4% of the total workforce. The existing positions are 9.1 million (including double or multiple positions, which belong to the same member). Subscribers to the “new” Pips stood at 3.3 million, 3.1 million for negotiating funds, over 1.5 million for open funds and about 600,000 for pre-existing funds. Men are 61.9% of those enrolled in supplementary pensions (73.4% in negotiating funds), in the wake of that gender gap that has already manifested itself in past years. There is also a generational gap: the distribution by age sees the prevalence of the intermediate and closest classes to the retirement age: 52.9% of those enrolled are aged between 35 and 54 years, 29.5% has at least 55 years. As for the geographical area, most of the members reside in the northern regions (57%).

Covip, from pension funds I invite you not to make emotional choices

In consideration of the negative trend of financial markets, most of the negotiated pension funds have disclosed to their members the invitation not to make choices on the emotional wave, which could lead to the consolidation of losses.

Many funds allowed members to cancel previously submitted switch, advance, transfer or redemption requests. Complementary pension schemes have shown an ability to react both with regard to business continuity and with regard to the methods of interacting with members, in some cases even intensified and facilitated by the enhancement of online interlocution methods. In this context, explains Covip, the websites also played an important role, through which information and behavioral indications were conveyed by numerous pension funds, especially those aimed at more extensive and widespread audiences in the area, such as primarily the category.



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