First-step analysis: pension & retirement plans in Italy

Statutory and regulatory framework

What are the main statutes and regulations relating to pensions and retirement plans?

In general, pensions and retirement plans in Italy are governed by the following sources of law (in order of priority):

• the Italian Constitution;
• legislation; and
• administrative regulations.

The Italian state pension scheme for employees in the private sector has undergone substantial reforms, which can be found mainly in the following statutes:

• Law No. 88 of 9 March 1989, on the restructuring of the Italian National Social Security Body (INPS);
• Legislative Decree No. 503 of 30 December 1992, on the gradual restriction of requirements to benefit from the scheme (ie, raising the minimum retirement age and the minimum length of the contribution period);
• Law No. 335 of 8 August 1995, on introducing the contributions related to the calculation of the benefit (replacing the previous earnings-related calculation) for the new younger class of employees;
• Law No. 449 of 27 December 1997, on the additional gradual restriction of the requirements to benefit from the scheme (ie, raising the age of qualification for the early retirement pension scheme);
• Law No. 243 of 23 August 2004 and Law No. 247 of 24 December 2007, on a further gradual restriction of the requirements of, and the period for payment of, pensions;
• Law No. 122 of 30 July 2010, on a further gradual restriction of the age requirements in connection with life expectancy rates;
• Law No. 214 of 22 December 2011, as amended by Law No. 14 of 24 February 2012, on an extension of the contributions related to the calculation of the benefit (pro rata) and equalising the age of retirement for both men and women;
• Presidential Decree No. 157 of 28 October 2013, on the general rules governing the age of retirement for men and women, in particular sectors on the basis of the new limits set forth by Law No. 214;
• Law No. 232 of 11 December 2016, Law No. 205 of 27 December 2017 and Presidential Decree No. 150 of 4 September 2017, on experimental measures aimed at applying for a loan at the age of 63 to anticipate the retirement general and supplementary pension scheme; and

• Law Decree No. 4 of 28 January 2019, linked to the Italian Budget Law 2019 (Law No. 145 of 30 December 2018), on some new rules for retirement based on the combination of the years of contribution and age for access to the public pension (the Quota 100 Decree), confirmed by the Italian Budget Law 2020 (Law No. 160 of 27 December 2019), as well as the revision of some of the rules governing retirement.

Private pension schemes under pillars two and three are regulated by Law No. 252 of 5 December 2005 (Law No. 252/2005). Collective bargaining agreements (CBAs), which are not statutory sources of law, can also regulate private pensions.

Law No. 28 of 6 February 2007, as amended by Law No. 130 of 30 July 2012, implements European Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of Institutions for Occupational Retirement Provisions (IORP). The Law could be implemented by some new administrative rules in 2020 on the basis of the provision of the new IORP II Directive and Legislative Decree No. 147 of 13 December 2018, the purpose of which is to facilitate:

• the further mobility of workers between member states;
• the good governance of information about and transparency regarding pension funds; and
• the safety of occupational retirement.

Legislative Decree No. 147 of 13 December 2018 specifically implements Directive (EU) 2016/2341 (IORP) on the activities and supervision of institutions for occupational retirement provisions, introduces some amendments to Law No. 252/2005 with regards to the above-mentioned aims, and provides some new rules for the scope and powers of the Italian competent authority, the Pension Funds Supervisory Board (COVIP).

Legislative Decree No. 49 of 10 May 2019 implements Directive (EU) 2017/828 on transparency on investment by pension funds and on the engagement of shareholders.

What are the primary regulatory authorities and how do they enforce the governing laws?

The primary regulatory and supervisory authority for both state and private pensions is the Ministry of Labour and Social Security (the Department).

The Department monitors the INPS, but both bodies are empowered to enforce the laws concerning state pensions by means of their powers of inspection and can impose administrative or civil sanctions on employers that are in breach of the law.

COVIP is the regulatory body that oversees, monitors and inspects the private pensions sector. Its functions include:

• general governance on pension funds;
• authorising pension funds;
• approving the statutes and regulations relating to the types of occupational and private pension funds;
• registering authorised pension funds;
• supervising the correct technical, financial, accounting and patrimonial management of the pension funds and their investment strategies;
• ensuring that pension funds have an adequate organisational structure of assets held in place;
• ensuring transparency between funds and their members;
• inspecting the mandatory documents of pension funds and pension schemes;
• making proposals for legislative reform in the field of occupational pensions;
• preparing annual reports on the supplementary pensions market; and
• imposing administrative sanctions on pension schemes.

What is the framework for taxation of pensions?

Contributions to the state pension scheme are compulsory and amount to roughly 33 per cent of the employee’s gross salary. The state pension is treated as employment income and is therefore subject to the same type of progressive taxation.

Employees can deduct, for tax purposes, the contributions paid by themselves and their employers up to a limit of €5,164.57.

An employee may choose to exceed the deductible limit of €5,164.57. In the case of contributions to a private pension scheme, the additional contribution has to be part of a wider company welfare plan, formed under the provision of a company collective agreement.

The returns on pension funds are generally subject to a reduced tax rate, currently of 15 per cent.

State pension provisions

What is the state pension system?

The state pension scheme is a compulsory pay-as-you-go (PAYG) first pillar system. Although the earlier reforms in the 1990s retained the PAYG system, the current reformed system mimics a funded system in the sense that the pension level of each retired employee is based on the amount of contributions he or she paid in to the public pension scheme during his or her working life.

How is the state pension calculated and what factors may cause the pension to be enhanced or reduced?

An individual’s pension is determined by the sum of the individual amount of contributions and its capitalisation at the rate of change of the nominal gross national product (GNP). As a consequence, in the current public pension scheme, the mean rate of substitution between pensions and salaries will decrease relative to the past owing to the fact that Italy’s GNP has been steadily shrinking in recent years.

In general, the minimum retirement age is 67 for both men and women. The law provides additional limits, including reaching the minimum length of the contribution period (which is currently 20 years) and increasing the retirement age relative to the automatic life expectancy rate (suspended until 31 December 2026 in accordance with article 15 of Legislative Decree No. 4 of 28 January 2019 (Decree No. 4/2019) and Italian National Social Security Body Notes No. 18/2019 and No. 19/2019.

The pension amount decreases for employees who retire before being entitled to an old-age pension (early retirement pension scheme for those who have been paying social security contributions since 31 December 1995). In any case, for an individual who started paying social security contributions before 31 December 1995, no early retirement pension is due until he or she reaches the minimum length of the contribution period (which is currently 41 years and 10 months for women and 42 years and 10 months for men).

The Quota 100 Decree allows retirement on an experimental basis with a combination of age (62 years) and years of contribution (38 years) for employees who satisfy the conditions from April 2019 up to the end of 2021 (Directive No. 11 of 29 January 2019 of the Italian National Social Security Body).

The law allows also women to retire with a combination of age (58 years) and years of contribution (35 years) at 31 December 2019 (Opzione donna, article 16 of Decree No. 4/2019 and Law No. 160 of 27 December 2019).

On the other hand, the law rewards employees who postpone their retirement and continue to work up to the age of 70, regardless of whether they fulfil the minimum requirements. As a result, they will be due a higher amount of benefit. In addition, the law limits the power of the employer to dismiss employees who have not yet reached the retirement ages.

For specific workers, the law provides more favourable rules and different and lower ages of retirement, for example, people with disabilities (Legislative Decree No. 503 of 30 December 1992) and people who carry out arduous work (Legislative Decree No. 374 of 11 August 1993).

Is the state pension designed to provide a certain level of replacement income to workers who have worked continuously until retirement age?

The pension levels of retired employees are based on the amount of the contributions they paid into the public pension scheme during their working life. As a result, under the current state pension scheme, the level of benefit for employees who worked continuously until retirement age is generally higher than for employees who had an interrupted career.

Is the state pension system under pressure to reduce benefits or otherwise change its current structure in any way on account of current fiscal realities?

Yes. In general, both the current level of the mandatory social security contributions, which is 33 per cent of the gross salary (23.81 per cent borne by the employer and 9.19 per cent by the employee), and other taxes on businesses are considered excessive and put the pension system under extreme pressure.

Occupational pension schemes

What are the main types of private pensions and retirement plans that are provided to a broad base of employees?

The main types of private pensions and retirement plans that are provided to a broad base of employees are closed pension funds and open pension funds.

Closed pension funds (the second pillar system) are set up through collective bargaining agreements (CBAs), including those signed at the company level, and are sponsored by trade unions as associations for the benefit of a particular group of employees. Examples of closed funds include:

• the Cometa pension fund, which is set up under the national CBA for employees in the metalworking and plant installation industries and related sectors;
• the Fonchim pension fund, which is set up under the national CBA for employees in the chemical and pharmaceutical industries;
• the Previndai pension fund, which is set up under the national CBA for executives in the manufacturing industry; and
• the Laborfonds pension fund, which is set up under a regional CBA for employees who work in the Trentino Alto Adige region of Italy.

Companies in the financial services sector – including insurance companies, banks and asset management companies – manage the assets of these pension funds.

In September 2019, membership of closed pension funds was about 3.1 million.

Open pension funds are created by financial services companies as specific, separate and autonomous assets. The beneficiaries of these funds are not limited to a particular group of people or employees, and membership can be on an individual or collective basis. In September 2019, membership of these pension funds was about 1.5 million.

There is also a third pillar system that provides individual pension schemes (PIPs), implemented through individual membership to the above-mentioned open pension funds or life insurance contracts. PIP assets are separate and autonomous within the companies. The beneficiaries of these funds are not closed or limited to a particular group of persons or employees. In September 2019, the membership of these funds was about 3.3 million.

In any case, membership of pension plans in the second and third pillars (all based on the funded system) is voluntary. The only types of the above-mentioned private pension and retirement plans provided to employees are based on defined contributions.

In addition, there are some old pension funds that were set up before the first law regarding private pensions came into force and are still in operation. These are both broad-based and non-broad-based pension funds. In September 2019, membership of these pre-existing pension funds was approximately 650,000.

Law No. 252 of 5 December 2005 provides specific regulations regarding these funds.

Are employers required to arrange or contribute to supplementary pension schemes for employees? What restrictions or prohibitions limit an employer’s ability to exclude certain employees from participation in broad-based retirement plans?

The main types of private pensions and retirement plans for which the law requires contribution by the employers are the ones provided to a broad base of employees as closed pension funds. The law also provides for contribution to open pension funds by employers.

There are no specific restrictions or prohibitions that limit an employer’s ability to exclude certain employees from participation in broad-based retirement plans. An employee’s right to participate in a private pension scheme is determined by the same CBA that sets up the fund itself. Employers are always required to comply with Italian employment law anti-discrimination rules.

Can plans require employees to work for a specified period to participate in the plan or become vested in benefits they have accrued?

Yes. For example, a number of pension plans exclude employees during their probationary period.

The right to pension benefits accrues at the time of vesting, with the same requirements as for access to the state pension and, in general, with at least five years of contributions.

What are the considerations regarding employees working permanently and temporarily overseas? Are they eligible to join or remain in a plan regulated in your jurisdiction?

Employees who work abroad are eligible to join or remain in a private pension scheme governed by Italy’s jurisdiction, provided that they have been duly informed and that they meet the other requirements for membership under the by-laws and regulations of the scheme.

In those cases, the levels of contributions required by the employees are generally the same as those required of employees who work in Italy.

Certain private pension schemes allow for the suspension of contributions during the member’s period overseas.

Do employers and employees share in the financing of the benefits and are the benefits funded in a trust or other secure vehicle?

The employer and the employees usually share in the financing of the benefits. If the private plan is set up under a CBA on a collective enrolment basis, the amount of contributions of both the employer and the employee is fixed by the CBA itself. An employee’s contributions to private pension funds are not considered part of an employee’s remuneration and so are not included in the annual calculation of severance indemnity (TFR) (Italian Supreme Court, decision No. 4949 of 12 March 2015).

COVIP supervises the investments and sets forth the rules governing the initial and periodical information provided to members and transparency on investments.

The contributions, which are collected by pension funds, are invested in secure vehicles provided by law and are usually managed through:

• agreements with insurance companies;
• agreements with asset management companies;
• subscription or acquisition of shares of real estate companies;
• units of closed-end mutual funds real estate; and
• subscription and acquisition of shares in closed-end mutual funds.

What rules apply to the level at which benefits are funded and what is the process for an employer to determine how much to fund a defined benefit pension plan annually?

Not applicable. 

What are customary levels of benefits provided to employees participating in private plans?

This data may be acquired on the basis of more transparency rules governing the funds and the information they have to deliver to the Pension Funds Supervisory Board (COVIP).

On the basis of the COVIP Report 2019, at the end of 2018, pension fund assets were mainly invested in debt securities (58.8 per cent), mostly government bonds, and 16.4 per cent of assets were invested in equities and 13.8 per cent in mutual funds. Domestic investments accounted for 27.7 per cent of total assets (€36.7 billion), most of which were government bonds. Investments in securities issued by Italian companies were limited: €3.7 billion (less than 3 per cent of total assets), of which €2.5 billion were bonds and the remaining amount was equities.

Are there statutory provisions for the increase of pensions in payment and the revaluation of deferred pensions?

Generally speaking, there are no statutory provisions for the increase of pensions in payment and the revaluation of deferred private pensions. However, in the case of ‘tacit consent’ contribution of the TFR, the by-laws and regulations of the private pension schemes must provide for the investment of these funds prudently in such a way as to guarantee the repayment of capital and returns that are within the parameters provided by state and EU legislation, at least at the rate of appreciation of the TFR.

In addition, private pension benefits (under the defined contribution regime) may be paid in capital, according to the present value, up to a maximum of 50 per cent of annuity and the accrued contributions and returns.

What pre-retirement death benefits are customarily provided to employees’ beneficiaries and are there any mandatory rules with respect to death benefits?

The law provides that if a member of a supplementary pension scheme dies before vesting the right to the pension benefits, the whole of the sums accrued will be redeemed by the member’s heirs or beneficiaries designated, whether they are natural or legal persons.

In the absence of such persons, in the case of private plans set up under CBAs, the accrued amounts will be forfeited to the pension fund, whereas in the case of PIPs they will be donated to charities.

When can employees retire and receive their full plan benefits? How does early retirement affect benefit calculations?

Employees can retire based on criteria regarding, for example, age and years of contribution, and can receive the plan’s full benefit, which may be provided in capital, according to the present value up to a maximum of 50 per cent of the final principal and interest accumulated, and in an annuity.

Private plans also provide that in the event of termination of employment and the employee remaining unemployed for more than 24 months, the pension benefits can be advanced, at the request of the member, for up to five years, compared with the requirements for access to benefits under the state pension scheme to which he or she belongs.

Early retirement affects benefit calculations and can decrease the amount of the employee’s benefit with respect to the old-age pension.

COVIP approved new rules to avoid any sex discrimination between men and women with respect to pension benefits in the event of termination of the employment relationship (decision of 22 May 2019).

Are plans permitted to allow distributions or loans of all or some of the plan benefits to members that are still employed?

Loans are not allowed by law. However, there is a provision to distribute a part of the accrued funds while the contributor is still working (eg, for healthcare costs incurred as a result of serious illness or for the purchase of a first home), but this is only permitted after eight years of contributing to the scheme.

Is the sufficiency of retirement benefits affected greatly if employees change employer while they are accruing benefits?

No, retirement benefits are not greatly affected as the law provides for such an occurrence. In particular, if an employee move from job to job during the period that he or she is accruing benefits and he or she loses the right to participate in the scheme, the by-laws and regulations of the pension scheme must provide for the transfer of the accrued benefits to another scheme of the employee’s choosing. Generally speaking, the transfer of pension funds is exempt from any tax or social security liability.

In what circumstances may members transfer their benefits to another pension scheme?

Members may transfer their benefits to another private pension scheme when they move job and there is a private pension scheme in the new company that they are entitled to join.

In addition, after two years in a private pension scheme, members are entitled to transfer all their benefits to another pension scheme. In exercising this right, an employee is entitled to join the pension scheme of his or her choice and to transfer the TFR accrued and any contributions from the employer to the extent and in the manner prescribed by his or her employment contract or CBAs.

Who is responsible for the investment of plan funds and the sufficiency of investment returns?

The manager of a pension scheme must ensure that the scheme’s funds are managed in the interests of the members, as well as in accordance with the law and regulations in force and the rules of the pension fund itself on the basis of the directives and forms issued by COVIP.

The fund manager submits all data and information regarding the fund to COVIP in accordance with the requirements of the regulator. The information is also sent to the pension scheme’s supervisory body.

The fund manager’s duties include monitoring:

• compliance with the investment limits in the aggregate and for each investment line that makes up the fund;
• transactions involving conflicts of interest; and
• good practices and governance to ensure greater protection of its members.

The pension scheme’s supervisory body represents the interests of the members and ensures that the administration and overall management of the scheme are in line with the members’ interests, as well as on the basis of the information received by the scheme’s manager. The supervisory body must report any irregularities to the board of directors of the fund and to COVIP, which is the only supervising authority in Italy.

Occupational pension funds manage their assets through agreements with institutions provided by law, which are selected in accordance to COVIP guidelines, and, to ensure the transparency of the process and consistency between objectives and management methods, determined in advance by the funds’ directors. The agreements must contain a number of elements provided by law, including:

• the institutions’ guidelines concerning the identification and allocation of risk and all the information regarding it and the transfer of the investment in another member state;
• the terms and the ways pension funds can exercise the right of withdrawal; and
• the pension funds’ voting rights.

The criteria for the identification and allocation of risk in the choice of investments must be specified in the by-laws of the pension fund. After consultation with COVIP, the Ministry of Economy and Finance issued a decree identifying and regulating a number of elements, including the types of assets in which pension schemes can invest their funds, maximum limits on investment and the criteria for investment in various types of securities (Ministry Decree of 19 June 2015).

Can plan benefits be enhanced for certain groups of employees in connection with a voluntary or involuntary reduction in workforce programme?

Yes, if the by-laws and regulations of the pension fund so allow and are in accordance with the CBA.

Are non-broad-based (eg, executive-only) plans permitted and what types of benefits do they typically provide?

Non-broad-based plans are permitted for certain categories of employees (eg, executives) and provide variable benefits. As for all employees, the new private pensions and retirement plans must be based on defined contributions.

COVIP is currently applying pressure by way of ‘moral persuasion’ to have the old non-broad-based pension plans combined with broad-based pension plans.

How do the legal requirements for non-broad-based plans differ from the requirements that apply to broad-based plans?

For a collective membership involving the enrolment of at least 500 workers in a single company or a single group, the supervisory body must be complemented by a representative designated by the company or group and a representative of the workers.

How do retirement benefits provided to employees in a trade union differ from those provided to non-unionised employees?

There is no distinction made between trade union and non-trade union employees.

How do the legal requirements for trade-union-sponsored arrangements differ from the requirements that apply to other broad-based arrangements?

Unlike private pension schemes sponsored by insurance companies for individual employees (which can be set up as specific, separate and autonomous assets within them), pension funds sponsored by trade unions can only be set up externally as a separate legal entity. In addition, the composition of the board of directors and supervision are different (eg, there must be equal participation of representatives of employees and employers), as is the model to manage their assets (eg, they must manage their assets through conventions with external institutions as provided by law) and the source of financing (eg, the level of contributions of both the employer and the employee can be fixed by the CBA).

Enforcement

What is the process for plan regulators to examine a plan for periodic legal compliance?

For the purposes of supervision and compliance, the Pension Funds Supervisory Board (COVIP) decides what information needs to be submitted, when and in what way with respect to initial and periodic reports, and the other data and documents required, the minutes of meetings and investigations of internal monitoring of the business’s compliance plan.

COVIP may also convene a pension scheme’s administrative and supervisory bodies, or request its governing body to convene, and set the meeting’s agenda.

COVIP submits an annual report to the Ministry of Labour and Social Security (the Department) on the business, important issues and the guidelines it intends to implement. The Department, in turn, reports to Parliament with its own recommendations.

In 2019, COVIP became the only Italian authority that may submit statistical data concerning all Italian pension funds to the European Central Bank.

What sanctions will employers face if plans are not legally compliant?

Not applicable.

How can employers correct errors in plan documentation or administration in advance of a review by governing agencies?

Not applicable.

What disclosures must be provided to the authorities in connection with plan administration?

The manager of a pension scheme must ensure that the scheme’s funds are managed in the interests of the members, as well as in accordance with the law and regulations in force and the rules of the pension fund itself on the basis of the directives and forms issued by COVIP.

The fund manager submits all data and information regarding the fund to COVIP in accordance with the requirements of the regulator. The information is also sent to the pension scheme’s supervisory body.

The fund manager’s duties include monitoring:

• compliance with the investment limits in the aggregate and for each investment line that makes up the fund;
• transactions involving conflicts of interest; and
• good practices and governance to ensure greater protection of its members.

The pension scheme’s supervisory body represents the interests of the members and ensures that the administration and overall management of the scheme are in line with the members’ interests, as well as on the basis of the information received by the scheme’s manager. The supervisory body must report any irregularities to the board of directors of the fund and to COVIP, which is the only supervising authority in Italy.

For the purposes of supervision and compliance, COVIP decides what information needs to be submitted, when and in what way with respect to initial and periodic reports, and the other data and documents required, the minutes of meetings and investigations of internal monitoring of the business’s compliance plan.

What disclosures must be provided to plan participants?

Participants are provided with an annual written update on the state of their personal plan. Pension plans are required to exhibit, in their annual report and in regular communications to participants, whether and to what extent in the management of the portfolio that social, ethical and environmental values have been taken into account. There must also be regular information where members bear some of the investment risk or can take investment decisions.

The participants are also entitled to access additional periodical information and can frequently monitor updated information regarding their contributions, pension benefits and their possible reduction, their personal plan and the benchmark, which must be in line with the investment policy of the scheme.

What means are available to plan participants to enforce their rights under pension and retirement plans?

Plan participants can enforce their rights under pension or retirement plans in different ways. In particular, participants are able to transfer their benefits to another pension fund. Participants who complain of irregularities, problems or anomalies relating to a pension fund can:

• make a formal complaint to the pension fund to obtain the necessary clarifications about the situation encountered or to satisfy their requests and, after that, write directly to COVIP;
• write directly to COVIP with a complaint immediately in particularly serious or urgent cases;
• bring a lawsuit for possible damages against the members of the board of directors, the supervisory body or the manager of the pension fund in the cases provided by law, for example, when directors:
  • do not comply with the duties imposed upon them by law and by statute with the diligence required by the nature of their specific role and skills; or
  • breach their obligations related to the preservation of the integrity of the assets of the pension funds; and
• bring a lawsuit for the payment of their individual contributions against the parties that should have paid it (usually the employer).

Plan changes and termination

What restrictions and requirements exist with respect to an employer changing the terms of a plan?

Not applicable.

What restrictions and requirements exist with respect to an employer terminating a plan?

Not applicable.

What protections are in place for plan benefits in the event of employer insolvency?

Council Directive 80/987/EEC of 20 October 1980, as amended by Council Directive 2002/74/EC, protects employees if their employer’s insolvency causes it to fail to pay salary and social security contributions.

In particular, the Guarantee Fund set up by the Italian National Social Security Body protects workers when the insolvent employer fails to pay salary and severance indemnity.

How are retirement benefits affected if the employer is acquired?

In this event, retirement benefits do not change provided that the membership requirements laid down in the by-laws and regulations of the private pension schemes are met.

Upon plan termination, how can any surplus amounts be utilised?

In the event of dissolution of the pension fund for matters concerning the parties that are required to pay the contributions, the insurance cover is transferred to the name of the beneficiaries of the pension.

Fiduciary responsibilities

Which persons and entities are ‘fiduciaries’?

Not applicable.

What duties apply to fiduciaries?

Not applicable.

What are the consequences of fiduciaries failing to discharge their duties?

Not applicable.

Legal developments and trends

Have there been legal challenges when certain types of plans are converted to different types of plan?

Not applicable.

Have there been legal challenges to other aspects of plan design and administration?

Not applicable.

How will funding shortfalls, changing worker demographics and future legislation be likely to affect private pensions in the future?

For the above-mentioned reasons, including changes to employees’ demographics, the mean rate of substitution between pensions and salaries in the current public pension scheme is set to decrease when compared with the past rate, when the rate of substitution was approximately 80 per cent.

During the past 20 years, the Italian government has attempted to fill the gap by introducing a broad-based private pension scheme.

By virtue of the pension reforms in 2005, the number and size of second pillar pension schemes has significantly increased. In particular, this has been achieved thanks to private pension schemes being financed by transferring the employees’ severance indemnity (TFR) – an amount that accrues in the company balance sheet annually and is due to the employee on termination – into such schemes, according also to the principle of tacit consent. Opting to receive the accruing TFR monthly as part of the remuneration will have no impact on the part already transferred to the pension fund, which remains accrued in it.

The TFR is a proportion of an employee’s salary that – until the 2005 reform – was set aside by the employer and generally paid to the employee in a lump sum upon termination of employment owing to retirement, change of job or dismissal. Each year, the employer withholds around 7.4 per cent of the total salary of the employee and on termination of the employment relationship, ‘returns’ the accumulated sum, which is annually revalued according to a guaranteed yield rate calculated on the basis of criteria established by law. The TFR accrued in the course of the year increases annually by 1.5 per cent, to which must be added a supplement equal to 75 per cent of the average inflation rate during the year in question.

Thanks to the relatively new option for employees to transfer the TFR to private pension schemes, the number of members of these schemes increased from 3.3 million at the end of 2006 to 8.7 million on September 2019, the majority of which are employees (as opposed to self-employed).

On September 2019, the total assets of pensions funds was about €7.7 billion. At the end of 2018, the total assets under management reached €167.1 billion (3 per cent higher than 2017), representing 9.5 per cent of the gross domestic product and 4 per cent of financial assets of households.

Update and trends

Are there any current developments or trends that should be noted?

Despite the continuous increase of Italian pension funds (at the end of 2018, the funds had 7.9 million members – an increase of 4.9 per cent with respect to the previous year) and the proportion of the labour force that its participants constitute (30.2 per cent), second pillar pension schemes (the second pillar) do not seem to have become as relevant as was predicted when they were first approved in 1998. Even with the amendments approved in 2005 and considering the purposes of the new European regulations in terms of transparency and governance (Legislative Decree No. 147 of 13 December 2018 on implementing Directive (EU) 2016/2341 and Legislative Decree No. 49 of 10 May 2019 on implementing Directive (EU) 2017/828) and in terms of portability and protection of the investments (Regulation (EU) 2019/1238), subscription to the second pillar did not register a significant increase in terms of total participation. One reason for this may be the strict connection provided by the law between the retirement age limits and the compulsory state pension scheme, which may influence the payments by the second pillar (apart from the event of unemployment after the termination of the employment before reaching the retirement age).

Furthermore, the authorities registered a wide dispersion of rates and returns among the different pensions funds. The Pension Funds Supervisory Board (COVIP) disclosed in its annual report that for a representative member, with a holding period of 10 years, the average synthetic cost indicator (an indicator aimed at easily communicating all the costs charged on a member as a percentage of the assets of his or her individual account) is 0.4 per cent for contractual pension funds, 1.4 per cent for open pensions funds and 2.2 per cent for ‘new’ individual pension schemes (PIPs). PIPs, despite their higher costs, continue to account for a large share of new subscribers, thanks to their extensive sales network and remuneration mechanism.

This factor, in addition to the asset allocation investments data published in COVIP’s 2019 report, can be interpreted as a form of individual protection – in terms of hypothetical higher performances of the fund – towards the risk of remaining in the fund until the public pension retirement age is reached.

The Italian government’s aim is to start considering new amendments for the whole pension and retirement system.

Updates and trends

Law stated date

Give the date on which the above information is accurate.

22 May 2019