Institutional disparities and asset allocation homologation in Italian defined contribution pension funds. How do they affect the guarantee commitment?

This paper analyzes the performance of the Italian defined contribution guaranteed pension funds during the period 2008-2012 through a panel analysis. This period has been very challenging for the guarantors, since it has been characterized by simultaneous systemic shocks to a wide range of asset classes. In such a scenario, we explore the determinants of cross-sectional differences in funds capacity to outperform the guarantees provided and to meet regulatory provisions. In particular, the paper is organized around three main research questions. The first one is focused on the probability of a guarantee payment in a given year. The second research question deals with the determinants of the gap between actual return and minimum guaranteed yield on a yearly basis. The third question explores the capability of the pension funds to meet the objective of a return in line with the level guaranteed by law on the termination indemnity’s contributions. The analysis tests a wide range of variables related to asset allocation, investment style, funds characteristics, markets return and volatility. The outcomes show that the capability in meeting the guarantee commitment is affected by the nature of the fund and the type of investment manager, whereas the impact of asset allocation is less marked, due to high homologation of financial strategies.