October 23, 2006

The government, employers and unions on Monday signed an important accord underpinning a plan to transfer about 5 billion euros from company coffers into the state pension fund.

A preliminary accord to transfer the money accrued by workers for their end-of-contract severance pay was reached last week. But there were doubts until the end whether all parties would sign on the dotted line.

The agreement is a key plank in the government's plan to revamp the nation's pension system, using severance pay funds until now held by companies and often utilized as cheap financing.

"This is a very important accord," Premier Romano Prodi commented, saying it meant that a system of non-state pension funds, with sizable resources, would finally be able to take off in Italy.

"The Italian financial system will have substantial new resources and workers will be able to top up their state pensions," he said.

Unions and the employers' federation Confindustria also hailed the accord as "important" for the country.

Under the agreement, all severance pay (TFR) accrued until now will be transferred to the state fund unless workers decide otherwise. The accord concerns only companies with more than 50 employees.

Workers must also decide what to do with the TFR money that their employer pays them in future. It can be paid into pension funds created for various job categories or another fund of their choice. Economy Minister Tommaso Padoa Schioppa confirmed that big companies who lose TFR funds will be able to draw on a compensation fund to be set up from the start of next year.

He also said that the accord would have no effect on the accounts laid out in the government's budget bill.

The innovation in Italy's pension system was slammed by centre-right economist and MEP Renato Brunetta, who called it a "scam" which would harm workers and companies. He also said it would kill off the alternative pension funds because few workers would choose to put their money at risk when they could give it to a state fund which offered them firmer guarantees.