In depth: Italy faces pressure over pension investment tax cuts and reforms | New

Italy’s far-right government is facing growing demands from pension funds and charities to cut taxes on returns from invested assets, while under pressure to find solutions to avoid a return to strict climate change demands. Fornero Law at the end of the year, to advance the reforms.

Enpam, the country’s largest doctors’ scheme, has signed commitments for €750 million in private debt, of which €489 million remains to be deployed, with exposure to Italy of around 20%.

“[We have] a strong domestic bias. Due to our considerable commitment to supporting the Italian economy, we hope that the government will continue and extend a policy of tax relief,” Enpam president Alberto Oliveti told IPE.

The decision to reduce taxes paid on returns to zero would benefit pension funds, given that in Italy the ETT model – which provides for exemption from contributions, taxation of accrued interest and taxation of the payment of benefits (contribution + accumulated income) ) – applies to first pillar pensions.

This is an exception among European countries, almost all European countries following the EET model – exempt contributions, exempt accrued interest and payment of taxable benefits – added Oliveti, this time as President of Adepp, the Italian Association of Private Pension Funds. .

“However, we know that now in Italy it is difficult to lighten the tax burden on pension funds, and for this reason we are asking for selective tax exemptions,” he said.

A selective taxation mechanism was already partially implemented during the COVID-19 pandemic in Italy, when the government returned part of the taxes paid to the Casse di Previndeza, which in turn was able to distribute them in the form of additional help to members.

“This mechanism can be used to encourage the Casse di Previdenza first pillar to carry out particularly important projects, or to encourage investments in certain sectors,” Oliveti added.

Sergio Corbello, the president of Assoprevidenza, the association of the supplementary pensions sector, told IPE that it is necessary to increase the ceiling for tax-deductible contributions, for many years now at €5,164, in getting rid of the “absurd taxation” on declarations annually reached by pension funds.

“It would also be interesting to put in place forms of incentives for young people, that is to say those in their thirties. As Assoprevidenza, we have made proposals [on the matter[ for some time now, and we will propose again to the new cabinet,” he added.

The new government will also have to face the long-standing issues relating to cutting red tape and designing a clear legislative framework for pension funds.

Institutional investors such as Inarcassa, with assets of €12.7bn, can operate quickly in Italy and internationally, without ending up in bureaucratic jams, under solid and clear rules.

“We expect from the new government that the double tax levy on pension funds will finally be reduced, because a tax of 26% on financial returns effectively denies the possibility of using more resources in favour of the welfare of professionals,” Giuseppe Santoro, the fund’s president, told IPE.

Inarcassa is ready to cooperate with the new government, considering solid rules, transparency and fairness in terms of governance, sound and prudent investments with appropriate criteria for risk and returns as priorities.

“We must be supported in our autonomy and not opposed or downsized, as has been the case with the regulatory interventions in the last 30 years. We are long-term investors and, as such, we cannot act under temporary measures,” Santoro added.

“We must be supported in our autonomy and not opposed or downsized, as has been the case with the regulatory interventions in the last 30 years”

Giuseppe Santoro, president of Inarcassa

Adepp is in favour not only of reaffirming the autonomy of the Casse di Previdenza, but also to improve efficiency of supervision and control mechanisms.

“Now there are too many mechanisms of supervision and control, focusing mostly on verifying individual deeds and individual transactions instead of being oriented towards verifying the efficiency and the achievement of objectives,” Oliveti said.

Moreover, requirements for financial sustainability must be reviewed, as the technical financial statements of the Casse di Previdenza are assessed over a 50-year horizon. Oliveti added: “These criteria, which include the obligation to have huge reserves, even in times of global crisis, need to be reviewed, also because in Italy the Casse di Previdenza finance their members, replacing the state.”

Second pillar pensions should then be encouraged. “Finally, we ask to defend the work of our taxpaying professionals with a law that guarantees them fair compensation and timeliness in payments,” he added.

Discussions on reform restart

Earlier this month the Minister of Labour and Social Affairs met with unions to restart discussing changes to the pension system to avoid a return to the Fornero law, after the so-called quota 102 expires at the end of the year, as negotiations on pension reform stalled under the government of Mario Draghi.

“The [new] The government will first try to solve, with temporary and short-term measures, quota 102, introduced after quota 100, because without modifications, the Fornero law, with its strict requirements, would apply again from 2023 The government could extend the 102 quota to 2023, or extend the unsuccessful ‘Opzione Donna’ and ‘Social APE’,” said Claudio Pinna, partner at Aon in Italy.

Quota 102 allows an employee to retire at age 64 with 38 years of contributions, replacing quota 100 (retirement at age 62 and 38 years of contributions), introduced for a period of three years, from 2019 to 2021.

The so-called “Opzione Donna” allows women to take early retirement, calculating pensions on the basis of contributions, and “APE sociale” is a benefit paid by the Istituto Nazionale della Previdenza Sociale (INPS) to unemployed or workers caring for parents with disabilities or performing arduous jobs.

Brothers of Italy (Fratelli d’Italia), the political party of Prime Minister Giorgia Meloni, launched the idea of ​​”Option Uomo” to introduce options for early retirement, at 58-59 years old with 35 years of contributions and a up to 30% reduction in pension benefits, according to reports.

For Pinna, the measures launched so far by the government coalition, such as the 41 quota of the League (Lega), which gives the possibility of retiring with 41 years of contributions regardless of age, or age of flexible retirement proposed by the Brothers of Italy (Fratelli d’Italia) in the electoral program, coupled with increases in the pension benefits paid, may have an impact on Italian public finances.

“The Fornero law had stabilized public finances and changes to the pension system may jeopardize this stability.” he said.

This week, the Minister of Economy and Finance Giancarlo Giorgetti signed the decree increasing the pension by 7.3% from January, in line with inflation.

The government expects public spending on pensions to increase by €0.6 billion in 2023, around €7.1 billion in 2024 and €5.6 billion in 2025, according to an update presented by the current government earlier this month, revising a previous version. approved by Mario Draghi’s government in September.

According to a report by the Corriere della Sera newspaper, Giorgetti is working on a flexible retirement age system, giving employees the option of retiring before 67, the current legal retirement age, which could involve reducing pensions or decide to continue working receiving a salary increase.

Beyond temporary measures

Long-term inflation, possible recession next year, war in Ukraine and the wider geopolitical context create problems for pension fund investment strategies.

“I don’t think this government will increase the deficit much, if it increases the deficit it will be in line with EU rules,” Pinna said.

Inarcassa expects the government to continue to follow the path of the previous cabinet in terms of management and control of public finances, given the agreements at EU level to receive funds for the National Recovery and Recovery Plan. resilience (Piano Nazionale di Ripresa e Resilienza, PNRR), and the mechanisms for managing volatility on the spreads of peripheral countries announced by the European Central Bank.

It expects a 10-year yield spread between Italian government securities (BTP) and German ‘Bunds’ around 250 basis points on average, despite the volatility which, in absolute terms, means yields to maturity between 4.5% and 5% gross.

“We approved the new strategic asset allocation for 2023, increasing the allocation to bonds due to the significant rise in yields, particularly the mid/long component of the curve. As part of this change, another part significant of our assets will be allocated to Italian government bonds, especially inflation-linked ones,” Santoro said.

The main problem, however, remains the stability of the pension system in the long term. The idea of ​​introducing a period of tacit consent (silenzio assenso) is a positive step to support the second pillar pension system in Italy, but Pinna suggested an additional step: introducing automatic enrollment in pension funds.

“Employees should automatically enroll in pension funds, giving them the option to opt out, but only after consulting on the consequences of opting out,” he said.

Oliveti said the public pension sector should follow the example of Casse di Previdenza and the three principles on flexible retirement age, proportionality and progressivity.

“There is a need to encourage a flexible retirement age, supporting young people at the start, and allowing older people to relieve themselves in the later working years,” he said.

Proportionality means that there must be consistency between the contributions paid and the amount of the pension received at retirement age – in the private pensions sector, this is already the case – while progressivity means making reforms without abrupt changes, for example raising the retirement age abruptly by a few years.

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