Reform of supplementary pensions system approved

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On 23 November 2005, the Italian cabinet approved a reform of the supplementary pension system which envisages the transfer of workers' current 'end-of-service allowances' to occupational pension funds, unless the workers object . The reform, to the disappointment of trade unions, will not come into force until 2008 for large companies and 2009 for small and medium-sized companies.

On 24 November 2005 the Italian Cabinet approved the legislative decree implementing proxy law 243/04 (IT0409101F) on the reform of the supplementary pension system, which had been rejected in October 2005 (IT0510105f).

The decree has not been substantially modified with respect to the version presented in October, but its application has been postponed. The reform of the end-of-service allowance (trattamento di fine rapporto, tfr) will start on 1 January 2008 together with the application of the reform of Italy’s first pension pillar, the public obligatory pension system, which raises retirement age from 57 to 60 years of age starting from 2008.

Up until 2008 the current rules on the voluntary transfer of the Tfr to the pension fund, on behalf of workers, will remain in force. From 1 January 2008 on (2009 in the case of small and medium-seized companies), instead, workers employed in private companies will have six months of time to decide whether to transfer their accrued severance pay to the closed-end funds, to other kind of pension funds or to keep it within the company according to the no-objection basis principle. Workers will have to directly inform the employer about their choice, otherwise the accrued Tfr will be automatically transferred to the existing collectively-agreed fund or, in the case there is no such a fund, to the open fund chosen by the company in agreement with the trade union representatives.

Workers will be able to decide to keep the Tfr within the company at first and transfer it to the pension fund in a second time but, they will not be able to do the opposite. Once the Tfr is transferred to a pension fund it will not be possible to transfer it again to company, however, the workers after two years will be able to decide to entrust their money to a different fund.

The reform will be applied to all private employees and not to public employees. Workers employed in public companies can however apply to the already established pension funds. In this case, their Tfr will be transferred in a virtual way to the Inpdap institute (the social security institute for public employs) and will be reassessed according to the average yields of a basket of funds. At the end of the employment relationship, the workers will be able to transfer the money accrued to the pension fund they prefer. A real transfer of Tfr funds from the Public Administration to the pension funds, in fact, would cause the instability of Italy’s state finance.

The reform of Italy’s second pension pillar and, in particular, the postponement of its application, raised the disappointment of the parliamentary majority and of the workers’ organisation which consider unfair and senseless the enactment of a reform without its short-term application.

Guglielmo Epifani, leader of the General Confederation of Italian Labour (Confederazione Generale Italiana del Lavoro, Cgil), commented that the postponement of the coming into force of the reform 'makes fun of both workers and their representatives' and that the government 'decided not to decide' in order to avoid divisions within its majority at the eve of the political elections. According to Mr Epifani the text of the decree, which had transposed several requests put forward by 23 workers’ and employers organisation in a joint document, 'looses its significance'.

Savino Pezzotta, secretary general of the Italian Confederation of Workers’ unions (Confederazione Italiana Sindacati Lavoratori, Cisl), shares the same opinion. According to Mr Pezzotta the government has made a very serious mistake because the 'immediate application of the reform would have solved a problem common to millions of people and young people in particular' who, just with the public system, will have an absolutely insufficient pension level.

The postponement of the reform permits savings to the State budget amounting to EUR 600 million which, otherwise, would have to be paid to companies as a form of compensation for the loss of workers’ Tfr. Moreover, it permits to postpone the problem of looking for the necessary resources for the application of the reform to the next legislation and to give two years of time to insurance companies to adapt and modify their products in order to make them able to compete on the market with the closed-end funds. This situation may damage workers, and young workers in particular, who will have to wait two more years before investing part of their deferred wage into the pension funds in order to receive a supplementary pension which will complement the public pension.

Confindustria, and in particular its president, Luca Cordero di Montezemolo, expressed his satisfaction with the solution adopted by the government and with the approval of the reform which grants a moratorium to companies before the transfer of the Tfr.

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