Pensions, three recipes for an anti-inertia lifecycle
Mefop's focus on the semi-automatic portfolio risk adjustment mechanism for pension fund members. And redressing members' lack of willingness to make choices
3' min read
3' min read
The inertia of members in their investment choices and the consequent risk of failure to achieve pension objectives have drawn the attention of the sector's operators to the advisability of envisaging strategies for the automatic reallocation of resources, such as life cycle. The offer in the Italian complementary pension system is still modest at the moment, although both Covip and international authorities are promoting life cycle profiles as default plans, in which the member is directed in the event of failure to choose the membership sub-fund.
In order to promote a reflection on the state of the art, both in Italy and abroad, and to open a moment of confrontation between operators with different experiences, Mefop organised the round table 'The life cycle between detractors and supporters: let's take stock of the state of the art and prospects in the Italian system'. The round table, held on 30 October, was attended by over 60 operators, indicating the great interest in the subject.
The panel opened with a snapshot of the Italian system and the presentation of some case studies of foreign experiences, whose analysis was contextualised taking into account the characteristics of the Pillar I and II systems of each country. This was followed by the presentation of the results of simulations carried out to assess the performance of life cycle profiles compared to other strategies: statistical evidence shows that an investment profile composed of 70% bonds and 30% equities and life cycle have very similar results, and any life cycle profile has a replicable distribution of results with a constant composition strategy. Nonetheless, the tail risk is quite different, as life cycle reduces exposure to the riskier components as retirement age approaches; by contrast, this exposure remains constant in a strategy with fixed weights over time, exposing the member to a higher risk of loss in the final accumulation phase.
Finally, a moment of discussion among the participants was opened. Among the points that emerged, the following are worth mentioning:
- the fiduciary duty of the pension fund which, in defining the investment offer, has a responsibility to the member to make it effectively usable. The life cycle overcomes the problems of inertia and emotionality of choices, which are extremely detrimental to pension accumulation. An umbrella fund, with differentiated lines according to risk-return profile, already has a life-cycle investment vision. Why not take the responsibility to declare it by setting up an ad hoc profile?
