The INPS is not the right place for supplementary pensions

The idea of a funded pension scheme managed by INPS is the ever-recurring theme of national debates on supplementary pensions. It is an idea as persistent as it is misguided, having resurfaced recently in connection with the proposal to introduce a state contribution to supplementary pensions for every newborn, to be channelled at birth into a pension fund managed by INPS. The proposal is not without merit; it is a ‘gentle nudge’ towards enrolment, of the sort devised by Richard H. Thaler, winner of the 2017 Nobel Prize in Economics. Nor is it an entirely new concept, even for Italy: something similar is already in place in Trentino-Alto Adige. However, a supplementary pension fund managed by INPS has all the makings of a scheme that is bound to fail.

To put the matter into context, it is worth noting first of all that a supplementary pension fund managed by INPS would not be unprecedented. This was the case with FondInps, which was wound up in 2020 because it was not working. Established as a residual pension fund, intended to collect severance pay (TFR) contributions from those who had tacitly joined the scheme but lacked a contractual pension fund, FondInps – weighed down by significant operating costs relative to a small number of members – soon outlived its original purpose. But this is not merely a precedent – albeit one that should not be underestimated. It is a broader issue concerning the operational model of the compulsory pension scheme – the first pillar, which lies at the heart of the mission of INPS and the professional pension funds – and that of the completely different supplementary pension scheme.

Supplementary pension funds invest in Italy, as they do elsewhere, in international financial markets. Therefore, the supplementary pension fund managed by INPS (hereinafter referred to as FondInps 2.0) should do the same.

The INPS is a pay-as-you-go scheme and does not accumulate resources, unlike supplementary pension funds. Consequently, it does not invest in international financial markets (nor, for that matter, in domestic ones). It would therefore need to acquire the necessary expertise to do so. Of course, it could acquire this expertise, but would it be efficient to do so? Perhaps not, given that there are already entities that do this, often at a relatively low cost. In the supplementary pension sector, fixed costs are significant, and paying them repeatedly – by multiplying the number of pension funds – is not a good idea. Then there is the not insignificant issue of the scale of contribution flows: if these remain modest compared to the costs, we return to the very reasons that led to the abolition of FondInps.

At this point, some might suggest setting aside the idea of investing in the financial markets, proposing instead to pay a statutory interest rate on the contributions received. This would be a simple accounting exercise, and the INPS is exceptionally good at this sort of thing. It would be, as the saying goes, a patch worse than the hole itself.

A rate set by law does not work; it ends up being either too low – a cost to those who could invest their contributions in more profitable ways – or too high, placing a burden on the state’s coffers sooner or later. Not to mention that it would take a great deal of effort to convince Europe that pension expenditure is not being increased yet again.

That said, even if we accept that INPS could manage a genuine funded supplementary pension scheme cost-effectively – that is, by investing in international financial markets – a significant problem remains: the positioning of FondInps 2.0 within the framework of national and international rules and controls specific to supplementary pensions. Firstly, it is not self-evident that the rules and controls for a pension fund administered by a body such as INPS, which manages compulsory savings, are the same as those for supplementary pension funds. There are reasons to believe they are not. The professional pension funds, which also manage compulsory savings and financial investments, are not subject to the controls and regulation applicable to pension funds. Is the intention to replicate that model for a pension fund managed by INPS as well? Better not.

Secondly, how would the governance of a supplementary pension fund managed by INPS be structured? Perhaps it would be political in nature, particularly given that, by virtue of the role INPS plays, the trade union to which our main social security body is subject is of a political nature. This is acceptable for a compulsory pay-as-you-go social security body such as INPS, which must ensure compliance with an intergenerational pact. But not for a funded pension scheme, whose mission is to convert contributions into benefits as efficiently as possible and, therefore, without pandering to a political mandate. Confusing these missions is counterproductive, as common sense and international experience suggest. Finally, there is the issue of oversight. The authority responsible for supervising the pension fund system is the Pension Fund Supervisory Commission (Covip), an independent administrative authority which is itself subject to the overall supervision of the Ministry of Labour. Thus, Covip, subject to the Ministry’s overall supervision, would be required to supervise a pension fund managed by INPS, whose senior management would be appointed by that very same Ministry. A classic case of ‘gnommo’ in the style of Gadda.

Mario Padula

Former president of Covip and professor of political economy at Ca’ Foscari University in Venice