There is little culture on pensions and supplementary pensions, as we know. On the other hand, there is no shortage of disinformation (think of the infamous video by Beppe Scienza, which appeared on Beppe Grillo's blog, which I commented on some time ago).
One of the most important aspects on which there is a lot of confusion concerns the costs of pension funds. We will never get tired of saying that costs are crucial. And since supplementary pensions are also crucial, it is easy to understand how much the combination of these two factors is: that's why we talk about it.
Not all pension funds are created equal
The costs of supplementary pensions are very heterogeneous and are largely linked to the type of pension fund. Here are the three main types of supplementary pension instruments present in Italy:
1) closed-end pension funds (or "contractual" pension funds): supplementary pension schemes set up by workers' and employers' representatives in the context of national, sectoral or company bargaining;
2) open pension funds: set up by financial intermediaries such as banks, insurance companies, asset management companies (SGR) and stock brokerage companies (SIM);
3) Individual Pension Plans (PIP): supplementary pension instruments set up by insurance companies.
The cost of the capital guarantee
Many workers who have the option of investing in a form of supplementary pension can choose, among the various segments available (for example "share", balanced", etc.), funds with a guarantee of the return of the capital or with a guarantee of a return equal to or higher than the TFR. And this even if there are still many years left to retire. Let's see together why, in most cases, the guarantee does not make sense.
1. Warranty costs too much
Even considering the least expensive form of supplementary pension, i.e. closed-end funds, the average annual cost of the unsecured segments is 0,19%, while that of the segments with guarantee is 0,29%. It's 55% more.
2. The guaranteed sub-fund is a monetary, with very low performance
Performance tends to flatten out on the guaranteed minimum. There is a very sexy theoretical explanation, which brings up Jensen's inequality, but I resist the temptation to tell you about it and I'll spare you: the intuition is that, for the manager, the damage associated with not respecting the guarantee would greatly exceed the benefit of obtaining a higher performance. So the manager invests in a guaranteed fund, while you risk having negative real returns (as eroded by inflation).
3. If there are at least 5 years left before retirement, it is reasonable to choose sub-funds that invest in medium-long term equities and bonds.
In fact, the probability of negative performance is low. And, as a corollary, you are likely to have a higher pension.
In summary, the guarantee makes sense if it is very close to retirement and you intend to "secure" the accumulated capital. A thirty-year-old who invests in a guaranteed fund is, in 99% of cases, a financial abomination.
