Fondapi
Security
Why Fondapi
cannot fail?
Article 15, paragraph 5 of Legislative Decree 252/05 states:
“Pension funds are subject exclusively to extraordinary administration and administrative compulsory liquidation procedures, excluding bankruptcy, pursuant to Articles 70 and following of the Consolidated Law on Banking and Credit of Legislative Decree No. 385 of September 1, 1993, and subsequent amendments and additions, with the relevant powers being exclusively assigned to the Minister of Labor and Social Policies and COVIP.”
This is because in Italy, supplementary pension schemes operate according to the capitalization system, which is very different from the pay-as-you-go system: contributions paid to Fondapi are set aside in the member’s individual position, while in the pay-as-you-go system (typical of INPS) the contributions collected are used to pay for the benefits of those who are already retired. In other words, with Fondapi you don’t enter into any intergenerational agreement: the money that workers accumulate with Fondapi is not used to pay benefits to anyone other than the workers themselves!
Furthermore, Fondapi does not use members’ contributions to finance itself or other benefits: the fund’s activities are financed through the membership fee.
Additionally, in 2017, the law excluded Pension Funds from the “bail-in” mechanism that exposes savers to risks from banking crises; therefore, the funds held by Fondapi at the depositary bank are expressly excluded from this risk.
Not Chinese boxes, but safety vaults
The legislative decree on supplementary pensions requires Funds to deposit members’ contributions and severance pay portions with a depositary bank; these contributions are then invested by financial managers, entities separate from the depositary bank that physically holds the resources.
The separation between who collects the money and who invests it ensures maximum protection, and furthermore, the Board of Directors, if dissatisfied with the financial managers’ performance, is free to revoke their mandate at any time without need for justification.
Concrete cases:
a bit of history
Over the years, some pension funds have experienced situations of imbalance: the membership fees from their few members could no longer cover the administrative operating costs of these funds, which were then merged into larger ones.
Despite these situations, members didn’t lose a single cent: they were offered the option to either fully redeem their accumulated position or continue with supplementary pension by transferring their position to another pension fund.
Controls and responsibilities
There are external entities that perform compliance and internal control activities; additionally, the Board of Auditors performs legal and accounting control of the pension fund.
COVIP, the competent administrative authority, oversees the proper functioning of the pension fund and, if penalties are imposed, the administrators are personally liable with their own assets; moreover, COVIP also has the right to conduct unannounced inspections of pension funds.
Security concerns not only the soundness of the regulatory framework that the law has defined to protect pension scheme members, but also the individual contribution positions of workers. Specifically:
- if there are delays or missing contributions, the system periodically notifies the company of these anomalies: in other words, the company cannot claim ignorance;
- if there have been delays in payments that have resulted in missed returns, the pension fund holds the company accountable, which is required to compensate for the lost earnings that the member has suffered due to these delays. The Fund credits these amounts to workers’ positions without withholding anything and classifies them as “compensations”;
- if the company is in bankruptcy: the Fund sends you a statement of your existing position to claim the amounts due to you and enable intervention by the INPS Guarantee Fund;
- if the company has gone bankrupt and you have requested recovery of amounts not paid by the company through the INPS Guarantee Fund, the fund receives them on your behalf and credits them to your supplementary pension position.
