If you read nothing else, read this …
Take up of pensions is just 20% in Italy, and state pensions have been cut back. Italian employers pay employees a mandatory cash benefit when leaving the company.
From 1 January 2006, this money will automatically go into a pension pot unless the employee opts out.
Perks such as company cars, mobile phones and meal vouchers are the most popular employee benefits.
Health benefits are increasing in popularity as the standard of state-funded provision falls.
Article in full
With the fastest ageing population and the lowest birth rate in Europe, the future is looking bleak for Italy’s welfare system, in particular its state pension. The Italian government is so concerned it has even tried introducing cash bonus schemes for women on the birth of a second child. And it is now looking to change the way employers are making contributions to employees’ decreasing pension pots.
Unique to Italy, there is a mandatory benefit paid on cessation of service known as Tramonto di Fine Rapporto (TFR). Organisations are obliged to accrue TFR benefits and pay them to employees on leaving service. Douglas Gibbons, senior associate at Mercer HR Consulting, explains:"This can be for whatever reason, whether it is resignation, termination or retirement."
On 1 January 2006, however, new regulations are being introduced that mean employees will have all or part of this TFR fund redirected to an externally-funded retirement pot. "Employees will have to opt out, rather than opt in, to this redirection," says Gibbons. According to Livio Mocenigo, senior consultant at Watson Wyatt, pensions take-up is currently less than 20% among Italy’s workforce and is particularly low among younger workers. "Young executives do not consider pensions to be important and don’t understand that state pensions have been cut back," he says.
The reforms to TFR will give employers more freedom to set up an organisation-sponsored pension. Employees will also have more freedom to choose between joining an organisation’s scheme, an industry-wide pension fund or transferring the TFR into a personal pension. It is hoped this will encourage take-up.
Financial education in Italy is extremely low. So recent changes have, at least, raised the profile of the impending pensions crisis. "There has been a lot of press about the reforms, which is helping to get the message through," explains Mocenigo.
The Italian mindset of living for today and not worrying too much about tomorrow seems to extend from pensions to the choice of other employee benefits. According to Gibbons, it is short-term benefits that are the most popular. "Many employees value perks such as company cars and mobile phones to more traditional core benefits. In addition ‘buono pasto’ (lunch vouchers), company loans and discounts on company goods are also popular," he says.
Mocenigo also cites company cars as perhaps the most popular benefit in Italy. "This is because they are very tax efficient. Employees also regard company cars as a status symbol, so they are [highly] valued," he says.
Medical cover is becoming more prevalent as the strain on state provision also takes its toll on healthcare. Accidental death and disability insurance is popular, because it is very cheap. And employees with families have come to really value private medical insurance. "The national health service in Italy doesn’t offer the best quality [care] and there are long waiting lists for hospitals. Employees really value being able to get treatment as a private patient, so the provision of health benefits could be set to increase," adds Mocenigo.