Pension funds for newborns: Calderone looks to INPS. Fornero puts the brakes on

Start building up a pension from infancy. This is the proposal hinted at by the president of INPS, Gabriele Fava, and subsequently endorsed by the Minister for Labour, Marina Calderone, who would like to include it in the next budget: “The funding can be found,” she told the Corriere della Sera, “small amounts are enough”.

According to the proposal, which is still in its infancy, an account would be opened for every newborn with a small state contribution, which would then be topped up voluntarily by parents and grandparents and, once the beneficiary has reached adulthood and is in employment, directly by the beneficiary themselves. It would be a funded pension scheme: these contributions would not be used to pay current pensions, as in the pay-as-you-go system, but would be invested and accumulated, along with any returns, in the individual’s personal account. Germany, too, has been moving in the same direction since this summer. On 12 August, Friedrich Merz’s government approved a bill providing for a state contribution of 10 euros a month for every child aged between 6 and 18, to be invested in the markets and left untouched until retirement, with a 1 per cent cap on costs.

“I believe that INPS can handle the management, monitoring and reporting,” said Calderone. The idea of entrusting INPS with a capitalisation fund is certainly not new. In 2020, shortly before FondInps was wound up – its weaknesses having been highlighted by Covip due to its organisational inefficiency and disappointing results (from 2009 to 2018 it yielded 15.98 per cent compared with the 23.58 per cent that the same money would have yielded had it been left within the organisation, and with 93 per cent of the portfolio invested in Italian government bonds) – Pasquale Tridico, the former president of INPS and now a Member of the European Parliament for the M5S, put forward the idea of a new and larger supplementary pension fund, still managed by the social security institution.

The idea is a good one, but there is disagreement over who should manage the money: “Frankly, the idea of INPS managing the funds leaves me very perplexed,” Elsa Fornero, an economist specialising in pensions and former minister in the Monti government, told Il Foglio. “Generally speaking, there is widespread support for this kind of proposal for a fund for children and infants, and I do not disagree. The idea is a good one, because it teaches how important it is to save for pensions right from birth. But the INPS must stick to its core remit, which it currently carries out well on the whole, and it already has far too many responsibilities.” On the management of investments, Fornero’s view is that “it could instead be private, transparent and supervised by COVIP, within the framework of European and Italian regulations, which are, on the whole, very sound and overseen by EIOPA, the European authority, and COVIP”. Such as the rules based on the ‘prudent person’ principle: diversified portfolios and higher risk only if the investment horizon is long-term.

“In any case, there are other caveats for a fund of this sort,” continues Fornero, “every new expenditure must be weighed against other priorities, such as nurseries, where we are currently lacking. And it cannot be compulsory, because the pension savings rate is already high. And everything still needs to be sorted out: can it be closed? How will it be taxed? Will grandparents be able to claim tax relief on gifts? The idea is a good one, but if it is poorly presented and even more poorly implemented, it becomes counterproductive to saving habits. The risk is that people will talk about it as if it were already up and running: I can just picture Minister Giorgetti grappling with the accounts. Politicians have a tendency to present themselves with a basketful of achievements, but in reality we lack the financial resources.”

The former minister then warns: “Whenever there is a budget bill, the government of the day is on the lookout for a ‘treasure trove’, as if there were idle funds just waiting for politicians to spend them. And when pension funds are set aside, there’s always a government that says, ‘Let’s use them, then we’ll top them up’: but who knows when they’ll actually do that.”

The economist also rules out compulsory quotas for small businesses: “They must attract capital because they are competitive and innovative, not because someone is forcing savers to invest in them.” Issues still to be decided include taxation, tax relief, advance payments, the freedom to withdraw funds, and what happens to the account for those moving abroad.

But the crucial factor for the sustainability of the pension system, according to Fornero, is employment: “Unless employment and productivity improve, we will always have low pensions and problems funding them”. The economically inactive – a third of Italians of working age, according to Istat – “are part of the problem of a labour market that fails to get people into work. So let’s not delude ourselves. Let’s also have a serious discussion about a pension savings scheme for newborns. But let’s be serious about it, please”.