Retirement fund or TFR? It is every employee’s dilemma when he has to decide what to do with his severance pay. The TFR held in the company is paid at the end of each employment relationship. The TFR paid to a pension fund, on the other hand, is accumulated in the individual position opened with the fund and paid when the supplementary pension or one of the other benefits is requested.
Memberships in supplementary pensions have been steadily increasing for years, but 2022 was an annus horribilis for pension fund returns. Between rate hikes and stock market swings, they fell by more than 10%, while the severance indemnities revalued by 8.3%. These are the data from the Covip report (Commission for the supervision of pension funds) with the final data for the last year.
Pension funds, declining returns
In 2022, the results of the complementary forms were affected by the drop in share prices and the rise in nominal interest rates, which in turn led to a drop in bond prices. Therefore, net returns were negative a -9,8% for traded funds and a -10,7% for open funds; and even to -11,5% in branch III PIPs. For branch I separate management, which accounts for assets at historical cost and not at market values and whose returns largely depend on the coupons collected on the securities held, the result was equal to 1.1 per cent.
Evaluating the returns over more specific horizons of pension savings, in the ten years from the beginning of 2013 to the end of 2022, the compound annual average return, net of management costs and taxes, stood at 2.2% for negotiated funds, 2.5% for open-ended funds, 2.9% for branch III PIPs and 2% for branch I management. In the same period, the revaluation of the severance pay amounted to 2.4% per year.
TFR in rimonta
Conversely, the severance indemnity yield in 2022 appreciated by 8.3%. Even in the long term, the severance indemnity beats pension funds: compared to 2017 (five years), traded funds gained 0.4% and open funds 0.2%, while PIPs vary from +1.4% of managed separated at +0.6% of unit linked; the TFR gained 3.3%.
Lastly, over the ten-year period, open-ended funds rose by 2.5%, trading funds by 2.2% and employee severance indemnities by 2.4%. The average performance of funds linked to the equity sector is instead higher than the return on severance indemnities (+4.7% for occupational pension funds, +4.9% for open-ended ones).
