In view of the great demographic transition taking place in Italy, which will see exponential growth in the number of seniors, savers par excellence, provident funds and pension funds become key investors in the growth of the economy.

This is demonstrated by the fact that from 2023 pension funds will acquire the status of professional investors under private law, thus facilitating their participation in regulated markets.

Moreover, in the context of the uncertainty we are currently experiencing, the role of pension funds places them among the few able to provide investors with a reliable illiquid portfolio in the medium and long term, since supplementary pensions are now an inescapable component of the Italian pension system.

What Pension Funds are

The provident funds are non-profit foundations with a public purpose that were created in the 1990s by the detachment of the Inps. They are subject to public supervision and collect contributions from the ‘liberal professions’, i.e. those whose activities are regulated by a Register and who carry out self-employed work with a public purpose, such as doctors, lawyers, architects and engineers.

There are 18 such foundations in Italy and they manage the pension future of over 1.7 million members.

At the end of 2022 their assets amounted to around 104 billion, of which 103.7 billion were total assets, a value that has almost doubled in ten years (in 2011 it was 55.7 billion). Another growing value is contribution income, which in 2022 was 12 billion against 7.7 billion in benefits paid out.

What they do in the investment world

The areas of greatest interest in pension funds’ investments are the energy transition and ESG, which embody the One Health principle that places at the centre the well-being of the system at all levels.

Traditionally, real estate has also been considered an important asset item for these foundations, but the current trend is to divest real estate ownership in order to turn towards diversified investments with a risk-return ratio that is more appropriate for a foundation that has to provide pensions for its members. A large part of the assets are invested in Italian and foreign financial markets, either directly or through financial companies.

To mention a positive example, eleven funds have invested 1.9 billion in the Bank of Italy capital and today represent the second largest group of investors after banks.

The orientation of pension funds

Supplementary pension provision is a form of voluntary retirement savings to supplement the mandatory pension. Members’ periodic contributions are the basis for investments whose income will form the future supplementary pension.

While for some in Italy the contribution of pension savings is still limited, there is evidence of progress such as the increase in recent years in the knowledge of fund providers and potential beneficiaries of unused resources.
This is an optimistic picture, but one that prompts operators to recall the need for direct support in the form of incentives. Moreover, the problem of fragmentation that limits the inflow of capital to the Italian productive fabric should be resolved.

Pension funds are increasingly moving towards long-term investments in Italy’s real economy, and are paying more and more attention to the country’s leading sectors, with a view to environmental and social sustainability that takes into account a massive cycle of financial interventions, but also inflationary dynamics and market volatility.

Institutional investment between old and new risks

The old and new risks have been joined by some new challenges, including a new era of low growth, high levels of public debt, drives towards deglobalisation, geopolitical uncertainties, demographic transition and climate change. Managing institutional assets in a changing environment of inflationary peaks, expansive to restrictive monetary policies and geopolitical crises is increasingly complex.

Yet the relevance of savings as a crucial factor of social development in an overall vision that has a great effect both in terms of policy and tax incentives and in terms of finance strategies dedicated to the country’s development, makes pension funds and welfare funds increasingly strategic players in the management of stable and consistent investments in the productive fabric, the main actors of a positive growth of the economy and society.