Possible lines of development for a modern and efficient market: utopia or realistic strategy?

The development of a modern and universal supplementary pension scheme and the expansion of long-term investment instruments represent two essential and closely related issues that must also be addressed by the political authorities with intelligence and foresight. The ability of our economy to respond to the most important challenge facing it –creating a more modern system for financing business – will depend on these two factors.

Source: Court of Auditors’ processing of Istat data

More specifically, we will have to switch from the current bank-centric model to a system in which a larger capital market and longer-term investment solutions are able to attract and funnel the savings of Italian families towards Italian-made products and the economic recovery.

The current demographic trend, with the “baby boomer” generation gradually approaching pensionable age, the increase in life expectancy, the unsustainability of the pay-as-you-go system and the riskiness of investments, began in the mid-90s. To these we can add the increasing difficulty governments have in supporting social security, to the detriment of general taxation, in accounts with increasingly stringent stability constraints. In this light, the report on the Italian pension system accounts presented in the Chamber of Deputies in February 2018 is very interesting.

This is the backdrop for the current interest in investing in long-term pension fund activities which supplement or often replace the State’s investment in real assets. In this context real assets means investments which, as well as providing investors with superior returns to those generated by state securities or similar, also satisfy a social requirement. Areas include healthcare facilities for the elderly (long-term hospitalisation and Alzheimer’s), renewable energies, infrastructure.

Considering that supplementary welfare systems will increasingly be required to support these investments, and as healthcare funds are often connected with them, one of the priority issues will be healthcare, where the State struggles to pledge further investment and where the demographic trend will force us to address a series of requirements.

Source: Ilsole24ore.com

In this area, Ministry of Economics Decree no. 175 of 30 July 2015 (later expanded in the 2017 Budget) provides tax benefits to pension funds that make investments in a list of assets the Government deems to be of priority interest.

This may not be a strong incentive but it is only the first step and certainly represents a clear indication of the path and goals that we wish to pursue. It will also enable the system to begin the phase of the (positive) disintermediation of the banks as the only financers of long-term investments.

This is an important step, particularly at this historic time which sees the credit system in almost all of the eurozone having to deal with the problem of bad debt and the relative reorganisation of venture capital following the prolonged recession that has affected businesses and families. The current climate of tax-free or long-term low tax conditions may also represent a good investment opportunity for investors.

At the same time, the complexity of investments made both indirectly (alternative investment funds, minibonds, etc.) and directly with the acquisition of assets will require institutional investors to have a suitable internal or external structure (specialist advisors) to monitor the investments they have made and the returns they have made with these alternative asset classes.

It will be a long process that will be supported even more strongly by the authorities but one that could make an important contribution to the growth of the country.

Source: 3rd GIMBE 2018 Report on the sustainability of the Italian National Health Service

The article is available only in Italian – originally published on Il Punto Pensioni e Lavoro