Regulation of state and supplementary pension schemes in Italy: overview

A Q&A guide to pensions law in Italy.

The Q&A gives a high level overview of the key practical issues including: state pensions; supplementary pensions; funding and solvency requirements; tax on pensions; business transfers; participation in pension schemes; and employer insolvency and overall scheme solvency.

To compare answers across multiple jurisdictions, visit the Pensions: Country Q&A tool.

The Q&A is part of the global guide to pensions law. For a full list of jurisdictional Q&As visit www.practicallaw.com/pensions-guide.

Renato Scorcelli, Scorcelli, Rosa & Partners Studio Legale
Contents

Pensions

State pensions

1. Do employers and/or employees make pension contributions to the government in your jurisdiction?

The Italian pension system is governed by the constitution, governmental and parliamentary legislation and administrative regulations. The main authority overseeing and supervising the system is the Ministry of Employment and Social Security, which monitors the national pension authority, the Italian National Pension Institute (INPS).

The state pension is based on the payment of compulsory contributions to INPS both by employers and employees. In Italy, there are different types of pensions, directly provided by INPS:

  • Old age pension. This is an economic benefit paid to employees who have fulfilled both the age and minimum contribution requirements established by law. Different rules apply depending on whether they benefited from social contributions before 31 December 1995 or after 1 January 1996:

    • before 31 December 1995: for 2015 they must have the minimum age of 63.9 years if women and 66.3 years if men and the minimum contribution requirement is 20 years.

    • after 1 January 1996: for 2015 they must have the minimum age of 63.9 years if women and 66.3 years if men and the minimum contribution requirement is 20 years. They are only entitled if the amount of the pension is at least equal to 1.5 times the amount established by law for the social pension (amounting to the yearly gross sum of EUR5,830.76 for 2015). If this latter condition is not satisfied, these employees are entitled access to the pension when they reach at least 70 years of age (this age requirement between 1 January 2013 and 31 December 2015 increased by three months), with five years of actual contribution.

  • Seniority pension. Until 31 December 2011, employees were entitled to receive this benefit on a quota basis resulting from the addition of the minimum pension age established by law to the minimum period of contribution of 35 years. This pension was cancelled in 2012 and replaced by the advance pension.

  • Advance pension. From 1 January 2012, employees with contributions before 31 December 1995 can obtain this type of pension after a contribution period of 41.6 years if women and 42.6 years if men. Employees with contributions from 1 January 1996 can access this pension after a contribution period of 41.6 years if women and 42.6 if men, or when they are 63 years old with a minimum period of 20 years of actual contributions.

Contributions paid to the government

The value of contribution is established as a percentage of the employee's salary. On average, employers are currently compelled to pay as a contribution about 33% of the gross salary of employees, and the quota charged to employees is 9.19%. Both these amounts are paid directly by the employers, who withhold the quota charged to the employees from their salary.

Taxation of contributions

In Italy, the contribution paid both by employers and employees is not directly taxed, but can be deducted from the annual income.

Monthly amount of the government pension

The monthly amount of the state pension in Italy is not fixed. There are different systems for calculating the pension, depending on the contribution requirements for employees. Generally, the monthly amount of the government pension depends on the amount of the salary, on the length of the period of contribution and on its total amount.

 

Supplementary pensions

2. Is it common (or compulsory) for employers to provide access, or contribute, to supplementary pension schemes for their employees? If they do, are they:
  • Occupational (that is, linked to an employment or professional relationship between the plan member and the entity that establishes the plan)?

  • Personal (that is, not linked to an employment relationship, established and administered directly by a pension fund or a financial institution acting as pension provider, where individuals independently purchase and select material aspects of the arrangements, though the employer may make contributions)?

Italian employers are not bound to provide access to supplementary pension schemes for employees, even if they can contribute to them. In fact the national supplementary pension system allows an integration of the monthly amount of the state pension with the supplementary pension scheme, depending on the amount of the contributions paid in different funds.

Italy has four types of supplementary pension schemes for employees:

  • Contractual funds. These are legal entities separate from employers and have a contractual origin because they are set up according to the relevant provisions of collective agreements (national, territorial and company). Therefore, they are dedicated only to the specific categories of the employees falling within the scope of these agreements. The access to these funds for the employees in the categories involved in the agreements is free and at the employees' discretion.

  • Open funds. These are established by banks, insurance companies, brokerage firms or management trusts. They are characterised by assets that are separate from those of the companies managing them. Access is at the discretion of the employees, who pay the relevant contributions. Collective agreements can provide for the obligation of the employer to pay contributions if the employees decide to access the funds.

  • Individual pension plans. These are not funds, but typically individual insurance plans, set up by insurance companies and open not only to employees but to everyone.

  • Old pension funds. These were occupational pension funds already established on the date on which the first law about supplementary pension schemes, Legislative Decree n. 124/1993 came into force (21 April 1993). They are defined by typical benefits and can be independent of other subjects or directly established by companies within their organisation with separate assets.

 
3. Where supplementary schemes are provided, do these schemes provide pensions, the value of which:
  • Is linked to the employee's salary (defined benefit)?

  • Is linked to employer and/or employee contributions and investment return on those contributions (defined contribution)?

The Italian supplementary schemes are based on the principle of the defined contribution. Therefore, the amount paid as pension to employees is linked to:

  • The contributions paid.

  • The length of the period of contribution.

  • The profits gained by the investment of the contribution on the financial market.

Linked to the employee's salary

Until 1993, with the old pension funds (see Question 2), it was also possible for employees to access funds characterised by a defined benefit.

Under section 2120 of the Italian Civil Code, in the event of termination of employment for whatever reason (dismissal, resignation or by mutual consent), all employees are entitled to severance to be accrued over the years of employment. Severance must be calculated by adding for each year of service a share equal to the gross salary due for such year divided by 13.5 which is equal to 7.5% of the employee's annual pay per year of service.

Linked to employer and/or employee contributions

Regarding the amount of contributions, the following principles apply:

  • Contractual funds. The contribution is established by collective agreements. Employees can decide to give only their severance to the fund, and in this event the employer is not bound to give any contribution to it.

  • Open funds. Employees choose the amount of contribution and the timing of the payments. They can participate in these types of schemes depending on their collective agreement or through a personal decision. Employees can decide to give only their severance to the fund, and in this event the employer is not bound to make any contribution to it.

  • Individual pension plans. Employees choose the level of contribution and the timing of the payments. The employer is not obliged to make any contribution to the fund but can voluntarily decide to do so. Employees can decide to give only their severance to the plan.

  • Old pension funds. The contribution is set up by collective agreements. Employees can decide to give only their severance to the fund, and in this event the employer is not obliged to make any contribution to it. If employees choose to pay a contribution to the fund, the employer must do so as well.

 
4. For supplementary pensions:
  • Is there a minimum period of service before workers are entitled to receive vested rights?

  • Are there any legal requirements for schemes or providers to index pensions in payment and/or revalue pension rights in deferment?

Minimum period of service

Italian law does not require a minimum period of service for employees before they are entitled to receive their vested rights in the pension funds, but there is an age requirement and a minimum period of participation in the fund. For employees with a state pension to be entitled to receive their vested rights, in addition to the age requirements, such employees must also have achieved at least five years of access to the fund. Employees who have not fulfilled these requirements are entitled to transfer the accrued entitlements to another scheme (but only after two years of participation), or to the restitution of the contribution paid, or to an advanced payment of part of the contributions allocated to the fund.

Legal requirement to index

The amount paid to the fund as severance and contribution is subject to a recapitalisation. It is allocated to individual bank accounts together with the profits gained from the investment of the contribution. The total amount of the pension is therefore the result of the sum of the contribution and the profits gained through their investment.

 

Funding and solvency requirements

5. In relation to supplementary schemes, are these generally funded or unfunded? If funded, are there any solvency requirements on the sponsoring employer or provider?

Funded or unfunded?

Supplementary schemes are funded only by severance and contributions paid by employers and employees. As discussed above (see Question 3), if employees participate in a contractual fund or in an open fund dependant on a collective agreement, their contribution is represented by the severance and the contributions paid by both themselves and the employer. If they decide to give only the severance to the fund, the employer is not bound to pay any contribution. If employees participate in an open fund or in an individual pension plan, the employer is not obliged to pay any contribution.

Employees must decide within six months from the beginning of their first job whether or not to use their severance to fund a supplementary scheme (in this case the severance is deposited by the employer on a monthly basis into the fund). If they decide to do, so they cannot change their mind during the course of employment but only on its termination. If they decide to keep the severance in the company, they can later change their mind, whereas should they decide to give it to a fund, this decision is definitive. Where employees do not decide within six months, the severance is ipso facto given to a fund established by the collective agreement applied by the company or, in its absence, to FONDINPS, a supplementary pension scheme directly provided by the Italian National Pension Institute (INPS).

Solvency requirements for funded schemes

Italian law does not provide for specific solvency requirements for employers. However, employees enjoy protection in the event the scheme becomes insolvent (see Question 15).

 
6. In relation to access for members to the funds in their supplementary pension scheme:
  • To what extent can members transfer their funds to another pension scheme?

  • How do members normally take the benefit of their funds (for example, lump sums, income withdrawals (drawdown), life annuity arrangements)?

  • What are the legal restrictions upon access to the funds (for example, age)?

  • What are the common arrangements for early retirement and ill-health retirement?

  • Are dependants of deceased members entitled to receive benefits payable on the member's death? What form do these commonly take?

Member's transfer of funds

The members of a supplementary pension scheme can freely transfer their funds to another scheme after two years of participation, or before, if they lose the entitlements to that scheme and change sector of activity. If the member of a fund dependant on a collective agreement decides to transfer his accrued entitlements to another fund of the same kind, the employer must continue paying contributions. If instead he chooses a scheme based on individual access, he loses the employer's contributions.

Taking pension benefits

After fulfilling the requirements for an old age pension, and after five years of access to the fund, employees can ask for:

  • Life annuity arrangements.

  • The payment of 50% of the amount collected as capital (a lump sum).

  • Payment of the entire amount collected as capital, but only if the life annuity arrangements corresponding to 70% of the principal plus interest is lower than 50% of the social pension.

An employee can drawdown the total amount only in the event of:

  • An enduring disability with a reduction in his capacity higher than two-thirds.

  • Unemployment for more than 48 months.

  • Loss of the requirement of participation in the fund because of, for example, dismissal.

Before meeting the requirements for a state pension, the member of a supplementary scheme can ask for:

  • An anticipation of the benefits of the fund at any time, for an amount not higher than 75%, because of health costs relating to serious health conditions of the member of the fund or his family.

  • Eight years after access to the fund, for an amount not higher than 75%, because of the purchase of the first house for the member of the fund or for his daughters and sons.

  • Eight years after access to the fund, for an amount not higher than 30%, for other necessities of the member of the fund.

  • Two years after access to the fund, the transfer of the member's accrued entitlements to another fund.

  • The drawdown of the sums paid up to that time.

  • The drawdown of 50% of the amount collected as capital for unemployment from 12 to 48 months.

Legal restrictions

Italian Law does not provide for specific restrictions.

Early and ill-health retirement

Italian law regarding supplementary pension schemes does not provide specific arrangements for early and ill-health retirement. Regarding drawdown and/or restitution in case of reduction of capacity or health costs, see above, Taking pension benefits.

Dependants' benefits

The benefits on the member's death, in case this occurs before the vesting, can be paid to individuals or bodies directly appointed by him. If the member of the scheme has not appointed anyone, the heirs are entitled to receive the benefits.

The benefits on the member's death, in case this occurs after the vesting, can be paid in the remaining portion both as life annuity arrangements and as a lump sum to individuals or bodies directly appointed by him if the pension scheme so provides.

 
7. Is there a regulatory body that oversees the operation of supplementary pension schemes? Do any other governance regimes apply to supplementary pension schemes?

Regulatory body

COVIP is the Italian authority that oversees the operation of supplementary pension schemes by controlling the organisational, managerial and financial framework of all Italian supplementary schemes. It is structured into different divisions and departments, co-ordinated by a general manager and subject to the supervision and control of a commission.

Regulatory framework

COVIP authorises the activity of all funds and supervises the legitimacy and transparency of their operations. COVIP also keeps a record of all the funds operating in Italy and its inspectors can request to see any documents relating to a fund's technical, financial and accounting management.

Other key governance requirements

All the pension scheme governance requirements are regulated by law, but COVIP can also promote changes to the rules regarding supplementary schemes.

Penalties for non-compliance

COVIP can apply administrative monetary penalties for non-compliance with the provisions of law regarding pension schemes, in the following amounts:

  • From EUR5,000 to EUR25,000 in the event of non-compliance with the requests made by COVIP or for delaying its operations.

  • From EUR500 to EUR25,000 for non-compliance with the rules regarding the organisation of the fund.

  • From EUR2,600 to EUR15,500 in the event of lack of communication of any change to the ethical requirements set by the law for managers, who must not have been convicted for criminal affairs.

 

Tax on pensions

8. Are any tax reliefs available on contributions to supplementary pension schemes (by the employer and employees)?

Tax relief on employer contributions

The 4% (6% for companies employing less than 50 employees) of the severance assigned to a pension fund and the entire amount of extra contributions paid by the employer to a pension fund can be deducted from the employer's annual income with only a few minor exceptions. Further, on top of such extra contributions, employers must pay compulsory social contributions at a reduced (10%) rate.

Tax relief on employee contributions

The contribution paid to the fund can be deducted from the employee's annual income up to the amount of EUR5,164.57.

 
9. Are there any approval or registration requirements with the local tax authority where a supplementary scheme is established?

Under Italian law, there are no specific registration requirements with the local tax authority, but supplementary pension schemes must be previously authorised by COVIP (see Question 7, Regulatory body). After receiving the request for authorisation, COVIP communicates its decision to the Ministry of Employment and Social Security and the Ministry of Treasury and then registers the pension scheme.

 
10. What is the tax treatment of investments made by the scheme?

The annual profit on the capital of investments made by the scheme is now subject to taxation at 20% (until 2014, taxation was 11.5%).

 
11. What is the tax treatment of pension and lump sum payments made to members?

Pension is taxed at a rate of 15%, reduced in proportion to the number of years of participation in supplementary pension schemes. If this period is longer than 15 years, from the 16th year the rate of taxation is reduced by 0.3% for each year of participation, with a maximum reduction of 6%. Therefore, after 35 years of contributions the rate is reduced to 9%. This is the same tax treatment of lump sum payments made to members.

 
12. Are there any other applicable tax charges on schemes?

There are no other applicable tax charges on schemes. Taxation is only applied to pension benefits (see Question 11) and to profits on capital (see Question 10), while contributions are deducted from annual income (see Question 8).

 

Business transfers

13. Is there any legal protection of employees' pension rights on a business transfer?

Italian law does not provide for employees' pension rights in case of business transfer.

According to some opinions, if an employee is a member of a fund established by collective agreement, in the case that both the transferor and the transferee apply the same collective agreement, the transferee continues paying contributions. On the contrary, if the employers apply a different collective agreement, a member of a fund provided for by the transferor loses the requirement of participation (if the transferor fund does not provide for the possibility of keeping the scheme in the event of a transfer of undertaking) and he has to choose the fund of the transferee or any other kind of supplementary scheme.

If an employee is a member of an open fund, an individual pension plan, or an old pension fund, which he has accessed independently of any collective agreement, he continues paying contributions to it.

 

Participation in pension schemes

14. Can the following participate in a pension scheme established by a parent company in your jurisdiction:
  • Employees who are working abroad?

  • Employees of a foreign subsidiary company?

Employees working abroad

Employees working abroad in an EU country can participate in a pension scheme established by a parent company in Italy, provided that the scheme was previously authorised for EU operations by COVIP (see Question 7, Regulatory body).

Employees of a foreign subsidiary company

Employees of a foreign EU subsidiary company can participate in a pension scheme established by a parent company in Italy, provided that the scheme was previously authorised for EU operations by COVIP.

For other EU employers and employees, it is necessary to verify whether there is a convention between the countries regarding supplementary pension schemes.

 

Employer insolvency and overall scheme solvency

15. Is there any protection provided for pension scheme benefits where the sponsoring employer becomes insolvent? If so, who provides the protection, and how does this operate? If the scheme itself is underfunded, are there any funding obligations on connected or associated legal entities?

If an employer becomes insolvent and is involved in:

  • A bankruptcy.

  • A compulsory winding up.

  • A special administration.

  • An agreement with creditors.

The employees who have terminated their employment relationship can ask for the intervention of the guarantee fund instituted by the Italian National Pension Institute (INPS). The guarantee fund does not pay any amount to the employees, but directly pays contributions to the supplementary pension scheme.

If the scheme is underfunded, because of financial problems qualified as serious by COVIP (the Italian authority that oversees the operation of supplementary pension schemes), the managers of the fund must communicate to COVIP possible solutions and measures to save it.

In the event of the dissolution of the fund, because of the insolvency of the subjects bound to the contribution, members who already receive a pension have insurance protection. The other members of the fund can instead drawdown the amount paid as contributions and severance to the fund or transfer it to another supplementary pension scheme.

 

Online resources

COVIP (Commissione di vigilanza sui fondi pensione)

W www.covip.it

Description. This is the official website of the Italian authority that oversees the operation of supplementary pension schemes. It contains legislation regarding pension schemes and information about the authority.

INPS (Italian National Pension Institute)

W www.inps.it

Description. This is the official website of the Italian authority that oversees the national pension system. It contains legislation about the state pension and information regarding contributions and systems of calculation of benefits.

Ministry of Employment and Social Security

W www.lavoro.gov.it

Description. This is the official website of the Ministry of Employment and Social Security, which provides information about the department and its organisation and also legislation regarding labour law and pensions.



Contributor profile

Renato Scorcelli,Partner

Scorcelli, Rosa & Partners Studio Legale

T +39 276 390 744
F +39 276 390 681
E rscorcelli@splegal.it
W www.splegal.it

Professional qualifications. Admitted to the Supreme Court

Areas of practice. Employment; pensions; outsourcing.

Professional associations/memberships. Member of the editorial committee of "Rivista Critica di Diritto del Lavoro"; Member of AGI (Italian Employment Lawyers' Association) and of EELA (European Employment Lawyers' Association).


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