Pensions are an essential aspect of social security as they help combat retirement insecurity by providing financial support for retirees. In Italy, the amount of money a person receives from their pension is based on how much they have contributed while working. All public or private sector workers must make regular contributions to a social security institution to receive a pension.
Features of the Italian Pension System
The central features of the Italian pension system are as follows:
1. Two Pension Pillars
In Italy, there are two pension pillars, a public one managed by INPS (National Social Security Institute) and a private pillar:
a) Public Pension INPS
Pension contributions towards INPS are approximately 23.5% for the employer and 9% for the employee and are mandatory.
b) Private Pension System
The private system is, called "Pensione Integrativa," is voluntarily and can be divided into three categories:
Fondi Pensione Chiusi (Closed Pension Funds)
Closed pension funds are so named precisely because membership is reserved for a limited range of workers. They are foundations or associations established by collective agreements, which provide only for workers that CBA represents.
Fondi Pensione Aperti (Open Pension Funds)
Open pension funds are thus defined as opposed to closed pension funds since anyone can join them regardless of their working situation and or CBA applied (employee, self-employed, freelance).
Piani Individuali Pensionistici or PIP (Individual Pension Plans)
The PIPs are life insurance contracts and are established exclusively by insurance companies. Like open pension funds, membership is possible for any person regardless of work activity.
1. Italian Minimum Pension Supplement
For people with a below-minimum pension (EUR 507.42 per month), the system offers social payments ( Minimum Pension Supplement) to reach a total of EUR 6,596.46 per year.
2. Italian Early Retirement Pension
You can retire early if you are a man and have at least 42 years and 10 months of contribution, or if you are a woman, you have at least 41 years and 10 months of contribution. If you were first insured after January 1, 1996, you need to be at least 63 years and 7 months old with 20 years of contribution. Your notional account balance must also be enough to provide a pension of 2.8 times the monthly old-age social allowance (assegno sociale).
3. Italian Termination Indemnity Payments
When an employer and employee terminate their working relationship, the employer must pay termination indemnity or 'Trattamento di fine Rapporto' (TFR) in Italian. The TFR acts as financial protection in the event of involuntary unemployment or as an added pension benefit upon retirement. Severance is calculated as 6.9% of an employee's annual salary, including a 75% inflation adjustment plus a 1.5% fixed rate accrual. This sum is given to the employee as a lump payment. If the TFR benefit is accumulated over an entire career, it is anticipated to provide a 10-15% pension of final pay.
4. Italian Disability Pension (Pensione di inabilita)
To qualify for this pension, you must be wholly and permanently unable to work, as verified by a doctor. Before making a claim, you must also have at least five years of contributions, including three of the last five years. Also, your employment must have ended. If you are also entitled to a work injury disability pension, only the portion of the disability pension that exceeds the work injury disability pension will be paid.
5. Italian Social Pension
A social pension is given to Italian citizens who are over the age of 65 and live in Italy without insurance coverage. Their income falls below the minimum set by law. This includes income from a spouse.
6. Italian Survivor Pension
To receive the survivor pension for the deceased, the deceased must have had at least five years of contributory coverage, of which three must have been earned in the five years before death. Or the deceased could have fifteen years of contributory coverage, regardless of earning period.
Who's eligible for receiving the Italian survivor pension?
The following are mainly eligible for survivor benefits:
- Widowed or partnered survivors,children, grandchildren, nephews and nieces, separated spouses with alimony rights are all eligible for survivor benefits.
If no eligible survivors fit this description, dependent parents over 65 or unmarried disabled dependent siblings may be eligible for benefits. There is no age limit for those who were disabled at the time of the insured's death.
7. Payable Tax on Pension
Statutory pension contributions (INPS) are not taxed in Italy. They reduce the taxable income as in many other European countries. Private pension contributions your employer makes are taxable income and subject to social security contributions (at a specific rate). You can deduct up to €5,164.57 of paid contributions from your taxes. They are deductible only up to EUR 5164.57 per year.
Fiduciary Rules and Investment of Pension Plan Assets
Pension fund members must be clear about the risks they are taking on. To this end, financial managers must stick to the fund's risk profile with a preventative approach. In line with COVIP rules, funds must provide their members with information about investment choices and draw up a document detailing the objectives and criteria of their investment policy. This should include:
- Risk measuring methodologies and investment risk managementBreakdown of assets concerning length as well as the benefits of the pension benefits due
This document is required reading for all beneficiaries and pensioners of the pension fund. It is reviewed and updated every three years and made available to everyone who receives benefits from the fund. It has also been ruled that in cases where an employee's severance pay contributions are transferred without their knowledge, the retirement fund may only invest that money in more secure options that offer comparable return rates to what was initially promised.
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