Green light for a pension scheme from birth, funded by the state and family contributions

Young adults who have just come of age would thus find themselves with a small nest egg to fund their studies or set up a business, but above all with a solid starting capital for building a second pillar to supplement state pensions. On their 18th birthday, the funds set aside can in fact be transferred to a supplementary pension scheme, including an individual one. And in the latter case, a particularly long investment horizon would allow for less conservative strategies, such as life-cycle strategies, which involve a higher initial exposure to equities and a gradual reduction in this exposure as retirement approaches.

In addition to the initial capital, further contributions would be made once the newly turned 18-year-old enters the world of work. In the most straightforward scenario, the €12,058 invested at 3 per cent (over the last ten years, Italian open-ended funds have recorded a net return of 2.7 per cent) from the age of 18 to 67 would grow to a total of €51,323, to which would be added contributions to supplementary pension schemes, which, on average for an Italian employee enrolled in a pension fund, amount to €3,110 per year according to the latest Covip Annual Report, taking into account severance pay (TFR) and employers’ contributions. To simplify matters and assuming that contributions remain unchanged and constant (with no impact from salary, length of service or revaluations) and that entry into the labour market occurs at the age of 18, the final total calculated at 3 per cent by the age of 67 would be just under 400,000 euros (399,000 euros). However, if pension contributions were to begin at the age of 25 rather than 18, the total amount would fall to around 314,000 euros.

There would also be a negative impact in the event of a break in contributions caused by gaps in contributions – which are common during periods of discontinuous employment – with the effects being all the greater the earlier they occur. The choice of investment fund also has significant implications: the 3 per cent used is close to the historical average return of balanced funds within open-ended pension schemes (2.9 per cent), whilst the historical average for guaranteed and bond sub-funds has been significantly lower, and that for equity sub-funds has been close to 5 per cent; however, the latter may also suffer substantial losses in individual years. Furthermore, over a period of nearly seven decades, inflation can considerably reduce purchasing power.

All things considered, of the final €399,000, around €348,000 comes from contributions paid during one’s working life and the associated returns, and only around €51,000 from capital accumulated in childhood, largely thanks to the decisive contribution of parents and relatives. The direct economic impact of the State would therefore remain limited compared with private savings, but its cultural benefit could be long-lasting: fostering a habit of saving from childhood onwards.