REGULATION OF SUPPLEMENTARY PENSION SCHEMES
PRESS RELEASE
PRESS RELEASE
PENSION BENEFITS DECREE: ANTITRUST SAYS FOR SUPPLEMENTARY PENSIONS THERE MUST BE TRANSPARENCY AND SIMPLIFICATION OF PRODUCTS
Ensure full comparability of the various options and provide for genuine portability of accrued pensions. These were two of the Italian Competition Authority’s demands in its note to the Presidents of the House and Senate regarding the legislative decree on supplementary pensions which is before Parliament. In the Authority’s view, comparability must be guaranteed at all levels, both initially in the choice of maintaining the retirement bonus or converting it to a form of supplementary benefit, and then also in the choice between these different forms and among the various products available. The different forms of supplementary pensions must be treated equally in terms of governance and particularly stringent measures must be adopted to avoid conflicts of interest in investments.
The Authority agrees with the legislature’s decision to put the different existing supplementary pension schemes on an equal footing and to ensure the portability of accrued benefits to other forms of pension, because this will increase competition in the marketplace with positive effects on the costs and quality of products offered. But for this to happen, with its attendant benefits for workers, there must be a substantially equivalent treatment in the different pension schemes. The Authority, by contrast, points out the significant difference in costs among the various forms of supplementary superannuation which are most evident in a comparison of open and negotiated pension funds on the one hand and individual retirement plans (PIP) on the other. Specifically, the average overall costs of a PIP are systematically higher than those of other forms of superannuation.
Common rules are needed, then to facilitate comparison among the offerings available. The rules should not only ensure true transparency in the sector but also, more importantly, bring about an effective simplification of the products. In this context, the Authority trusts that the general principles established by the proposed legislative decree as regards comparability, portability, and contractual and economic conditions in retirement products will be more rigorous and incisive than those stipulated for other savings schemes. If necessary, the note suggests, the importance of the public interest could even justify interventions to forbid practices which are liable to limit or condition consumer choice. Amongst these possible initiatives, the Authority suggests prohibiting the use, in the case of PIPs, of contracts having upfront commissions, since in the supplementary pensions business there are insufficient measures to ensure that market operators provide adequate information.
The Authority further suggests that, in all cases of transfer, the exit costs should be strictly in line with the actual administrative costs sustained by the operators and that adequate standard procedures should be adopted for managing in a simple, rapid manner the complex transfer of individual funds from one form of retirement plan to another.
In the absence of such interventions, warns the Authority, there is a risk of recreating a situation similar to that seen in the third-party motor vehicle insurance market immediately after rates were deregulated, when consumers had great difficulty in taking advantage of the significant price differentials between companies covering similar risks.
Considering, too, that the choice of how to handle one’s retirement bonus is irreversible, the Antitrust Authority recommends that rules should be put in place to prevent unilateral changes to contract conditions which may disadvantage workers (a so-called ius variandi) .
As for the governance of pension funds (whether open or negotiated) and individual plans based on insurance principles, all necessary measures must be adopted to guarantee the real independence and effectiveness of the administration and control functions and the elimination of existing disparities.
The Authority also believes that the regulation of conflicts of interest must become more stringent.
As for the Guarantee Fund to facilitate access to credit, with particular emphasis on small and medium-sized businesses, the Authority agrees with the objective but hastens to point out that such assistance must respect the requirement to allow the Italian financial markets to develop in as competitive a way as possible, which also seems to be an overall aim of the measure in question.
In particular, in the view of the Antitrust Authority, the way the Guarantee Fund works must not lead to the issuing of credit without reference to the different risk profiles of the businesses, putting them all on the same level, because that would lead to a distortion of competition.
Furthermore, it does not seem wise that the Guarantee Fund should underwrite the whole risk because that would remove the incentive for the lenders to evaluate properly the borrower’s credit-worthiness and would open the way to possible opportunistic behaviour on the part of the banks, which would be tempted to provide credit even where there was no chance of recovering the money. A similar opportunistic attitude could be displayed by borrowers.
As for the manner of providing credit with the Fund’s guarantee, all interested parties must compete with each other and any recourse to joint proposals or coordination of offers must respect the relevant competition rules and specifically the inadmissibility of anti-competitive collusion.
Rome, 26 July 2005