The winter of our (demographic) discontent has a precise date: 2035. At that time – experts estimate – if the current trend continues the number of pensioners will exceed that of the employed, putting an end to the old cornerstone of compulsory social security of the past, the one according to which – also on the basis of a variable quota of redistribution and social solidarity, depending on the phases – those who worked paid pensions to those who had stopped doing so.
Supplementary social security and pensions for Italians
by Walter Galbiati
It is not a surprise, the need to move from a pay-as-you-go system to a funded system has been present for some time, even if perhaps the dimensions have been a little more exasperated than expected due to the strong birth rate decline. Precisely for this reason, since 1993 (the first year of the law on pension funds), complementary pensions have been added to compulsory pension provision. The abstract concept is simple: only with the second and/or third pillar does the allowance continue to guarantee a decent income at the time of total retirement. Everything, strictly with the contributory method, not “sweetened” by any corrective (of which there are still minimal traces in the compulsory pension); therefore, the more it accumulates, the more it withdraws at the end of the period. In addition to what has been generated – or burned – by the financial markets in the meantime.
The burden of poor work
In theory the path is linear and even obvious. In practice the path proved to be much more complex: “poor” work continues to act as a ballast for complementary pensions – average wages in Italy in real terms are lower than 2000 levels – the discontinuity of employment especially for the youngest and, last but not least, the still incomplete perception of the need to integrate income at retirement age.
Even today, in fact, the replacement rate – that is, the ratio between the annual amount of the pension and that of the final salary – is equal to 81.5% for the public social security allowance, a percentage which according to the European house-Ambrosetti simulations could drop to 67.6% in 2050 for employed workers. A fact that apparently makes it less urgent today to seek support for public pensions, but which is destined to change. Finally, a reason that adds to and amplifies the other points, to pre-establish a private supplement to the public pension it is necessary to set aside non-symbolic amounts and contribute for a long time; in a word, we need to start thinking about the moment when we will stop working when we are young and perhaps the most significant factor is precisely the temporal one.
Fewer and fewer pensions. It’s the Meloni government’s crackdown on early exits
by Valentina Conte
«More than how much, the when is important, the moment of entry into the world of complementary pensions – explains Francesca Balzani, acting president of Covip, the supervisory authority for the sector – and the answer is clear, we need to start young, as early as possible. Time is a multiplier of added value, because it allows you to make investments that are potentially more exposed to risk but also more profitable, with a share of stock markets that otherwise the worker closest to retirement would have difficulty assuming. And then there is a second profile, the tax advantage: the longer the period of stay in a fund, the lower the tax rate at the time of exit, up to the minimum threshold of 9%”.
An exceptional decade
Looking at ten-year returns (even if a pension fund is a very long-term instrument) the effect of the inflationary flare-up and the strong crisis in the financial markets is felt in 2022: the severance pay left in the company guaranteed a compound annual revaluation of 2.4%, a result surpassed only by the equity lines and to a more limited extent by the balanced products, in the average of the various forms of membership of the supplementary pension scheme. But in this decade, or rather in the last few years, there have been upheavals in rates and a decidedly exceptional rise in the cost of living: considering even just a 20-year period, severance pay has given much poorer results (the return on severance pay is indexed to part of inflation plus a fixed increase, ndr). However, in general, the performances linked to the stock markets are higher and more volatile, which is why it is advisable to have a long horizon ahead, to be able to absorb any periods of loss.
Returns compared to pension funds, PIPs and severance pay
All in all, looking at the overall numbers in these thirty years of pension funds (and Pip, individual pension plans), the sector has shown a certain vitality: at the end of 2023 there were 10.7 million open positions in the various complementary pension schemes, for a total of 9.6 million members (some participate in multiple forms of private insurance). Numbers growing by 4% compared to the previous year and equal to approximately 36.2% of the potential pool of members: compared to 2013, the number of members increased by 72.5%, also thanks to the new rules on membership of public employees (including the membership mechanism based on the principle of silent consent for the transfer of severance pay) and the fact that for some categories (for example builders) registration in the pension fund starts automatically upon hiring, thanks to the payments of a “contractual contribution” by the employer.
The downside is that many members do not pay contributions, or pay them occasionally: in 2022 (latest data available) 27% of members had not contributed at all. The consequence is that in the last ten years the growth in payments has been slower (+60%) than that in members. Even more worryingly, membership is not uniform: the participation rate of women is 30.9% while that of those under 35 is 23.9% compared to 45.1% in the 55-64 age group.
«Introducing young people to complementary pensions is fundamental – confirms Balzani – perhaps it would be appropriate to think about a tool that I don’t generally like, such as the bonus, but which in this context could work to encourage membership”. Past experience shows that initiatives to benefit the sector have had a positive response and lasting impact. There is still plenty of room for a virtuous path.
#Pension #funds #numbers #returns #comparisons #severance #pay
– 2024-05-06 23:44:36
