Italy: The Effects of Covid-19 on the Italian Pension System

Under many aspects 2020 was an extraordinary year, and for the Italian Pension System, it was no different. During the year, 746,146 deaths were registered, the highest number since the end of World War II. Compared to the yearly average deaths recorded for the years 2015-2019, equal to 645,620, there was an “excess mortality” of 100,526 units (15.6% more). Of those, 96.3% were people aged 65 or more. Thus, this phenomenon had a direct effect on the INPS (National Institute for Social Security) balance sheet and specifically on the forecast of the pensions amount to be paid for the years 2020-2029, which was lowered by more than 11 billion euros. Moreover, despite the recent introduction of several options to allow for certain kinds of workers to retire earlier, the number of pensioners decreased just slightly, equalling 16,015,042 individuals (the minimum number of pensioners of the last 25 years had already been reached in 2018 with 16,004,000 people retired). It is probable that if no additional early retirement options are implemented in the near future, the number of pensioners is going to decrease substantially in the next few years, given that there are 1,030,000 pension provisions that have been paid for more than 35 years, a number which is destined to decrease given the now advanced age of their recipients.

On the negative side, the record number of layoffs recorded for the year, although partially reabsorbed at year end, has caused a decrease of 15 billion euros of contributions collected, which contributed to an operating loss for INPS for 2020 of more than 25 billion euros, which will be only partially recouped in the following years.

As regards instead the supplementary pension scheme market, the data is, at a first glance, quite unexpected. Firstly, in line with the previous years, the net inflows of contributions for 2020 grew by 2.9% for contractual pension funds and by 5.9% for open-ended pension funds. Secondly, the number of adherents to a supplementary pension scheme grew to 8.4 million people, 2.2% more than the previous year, despite the unfavorable economic conditions many individuals have found themselves in. In addition, despite the financial turmoil recorded during the first semester of the year, contractual pension funds and open-ended pension funds earned on average 3.1% and 2.9% respectively; for PIPs (individual pension plans), the result was slightly negative, equalling -0.2%.

Analysing the above mentioned data, we can infer that, despite a slowdown in the growth of the supplementary pension scheme market, Covid-19 did not stop or invert the affirmation of the sector, but it provided a reason to accelerate the transformation and consolidation processes that are affecting it. Proof of this is that in 2020 the number of operating supplementary pension schemes fell to 372 (8 less than the previous year), nearly half of what it was twenty years ago (739), even though this can also be attributed to the entry into force of the IORP II Directive, which has introduced higher organisational standards for pension funds, the smaller of which do not have the economies of scale necessary to bear the additional costs required.

Finally, it should be noted that the new legislation, combined with the difficult times we are experiencing, require holders of key positions for supplementary pension schemes (e.g. Pension Fund Chief Executive, Risk Management/Internal Audit function) to have a high level of professionalism. Obviously, these specialized professional figures are present in the C&A Actuarial Firm, with many years of experience of assisting every type of supplementary pension scheme for many kinds of activities like:

• positions as Director, Head of Open Pension Funds or of Individual Funds, Member of the Supervisory Board;
• positions as Advisor for assistance to the Board in the investment policy decision-making, ensuring consistency between objectives and results;
• Preparation of Statutes, Rules and Conventions, assistance in the selection of administrative and financial managers and of the Depositary Bank, and support in the authorization process for the institution of a new supplementary pension scheme.

By Crenca & Associati (C&A)