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State pensions and mandatory schemes

Contributions

Do employers and/or employees make pension contributions to the government in your jurisdiction? If so, briefly outline the existing state pension system.

Italian law provides for a system of obligatory pension insurance for:

  • public and private employees, self-employed workers collaborators managed by the National Social Security Institute (INPS); and
  • categories of self-employed worker (eg, lawyers and engineers) managed by private social security insurance institutes.

Decree-Law 201 of 6 December 2011, as amended by Law 214 of 22 December 2011 (the so-called ‘Fornero reform’), reformed the public obligatory pension insurance managed by the INPS. Under the decree-law, access to benefits was established through the old-age pension and the early old-age pension.

Old-age pension

The old-age pension is provided – on request – to employees and self-employed workers who are registered:

  • with the general obligatory insurance system;
  • with another pension scheme available to certain categories of employee which:
    • acts as a substitute to the general obligatory insurance system; or
    • exonerates the employee from the general obligatory insurance system or subjects him or her to it in addition to another system; or
  • under the so-called ‘INPS separate management pension scheme’.

However, in all of these cases, the individual must meet the following requisites.

First contribution from 31 December 1995

Since 1 January 2012 anyone whose first contribution seniority dates back to 31 December 1995 can claim an old-age pension if their contributions have been recognised and they have accrued at least 20 years of contributions, regardless of whether they have actually been paid or accredited on any other grounds.

For 2018 to access the old-age pension, individuals must meet the following age requirements:

  • public employees (both male and female) – 66 years and seven months; and
  • self-employed workers (both male and female) – 66 years and seven months.

In 2019 this age requirement will become 67 years.

First contribution from 1 January 1996

Since 1 January 2012 anyone whose first pension contribution dates back to 1 January 1996 can claim an old-age pension provided that:

  • they have accrued 20 years of contribution seniority and meet the age requirements set out above; and
  • the pension is at least one-and-a-half times above the minimum social security pension amount (the so-called ‘threshold amount’).

If these conditions are met, once an individual reaches 70 years old and provided that contributions have been effectively paid for five years (obligatory or voluntary payments or by redemption) – excluding contributions not actually paid but accredited on any grounds – he or she will have access to the pension, regardless of its amount. This age requirement is currently 70 years and 7 months.

In 2019 the age requirement will become 71 years. The age requirement may be further increased in 2020 based on adjustments to the average life expectancy.

Early old-age pension

This pension is issued to employees registered with the general obligatory insurance scheme, with special schemes for self-employed workers (eg, crafters, small traders and farmers) and those registered under the INPS separate management pension scheme. This pension will be issued only if the contribution requisites are met, regardless of the beneficiary’s age.

Until 31 December 2018, to be eligible for the early old-age pension a person must have accrued:

  • 42 years and 10 months of contributions (for male workers); and
  • 41 years and 10 months of contributions (for female workers).

From 2019, a person must have accrued:

  • 43 years and 3 months of contributions (for male workers); and
  • 42 years and 3 months of contributions (for female workers).

The requisites are applied to all employees, both self-employed workers and public employees.

As of 2020 a further adjustment based on the average life expectancy is likely.

Early old-age pension of precocious workers

Article 1(199) and following of the 2017 Budget has introduced the possibility for workers who began working before they were 19 years old to claim a pension, the contribution requisite of which is lower than that of the early old-age pension.

In 2018 these individuals can obtain the early old-age pension if they have accrued 41 years of contributions.

Starting from 1 January 2019 individuals will need 41 years and 5 months of contributions.

This requirement is subject to the normal adjustment according to the average life expectancy, which has been applicable since 2010.

Advanced pension (APE)

This pilot programme was introduced by the 2017 Budget (Article 1(166) and following of Law 232/2016), which – from 1 May 2017 until 31 December 2018 – allows a person who is at least 63 years old to opt for early retirement and obtain a pension. This programme applies to employees (included public employees) and self-employed workers insured by a special pension scheme (eg, crafters, small traders and farmers) or by the INPS separate management pension scheme. Those insured by the pension funds for professionals are excluded.

The programme is carried out via two instruments:

  • Voluntary APE – implemented by way of loans from banks and insurers, which are issued through INPS. Once awarded a pension, beneficiaries must repay the loan in continuous instalments for the next 20 years, with relative interest.
  • ‘Social’ APE – this consists of a subsidy issued by the state to four categories of workers deemed worthy of this special protection – in particular:
    • the unemployed;
    • the disabled;
    • caregivers; and
    • workers who perform one of the 11 occupations listed in the annex to the Budget Law (so-called ‘heavy’ work).

The difference between the two instruments lies mainly in the fact that social APE is a public subsidy and thus the beneficiary is not subject to any negative effect. On the other hand, with voluntary APE, the beneficiary will be subject to a reduction in his or her pension, depending on the advanced requested by the financial intermediary that granted the loan.

The government is currently still assessing whether to extend APE for 2019 and for future years.

Pension provision

Pension amounts are determined on the basis of two models: one regarding remuneration and the other contributions.

In the remuneration-based model, pensions are provided in proportion to the remuneration received in the last years of employment. The financial sustainability of the system mainly depends on a balance between active workers and pensioners.

Over the years, the continuous ageing of the Italian population, together with birth rate trends, have plunged the remuneration model into crisis, leading to a revision of the same.

Law 335 of August 1995, entitled the reform of the obligatory and supplementary pension system (the so-called ‘Dini’ reform), introduced the calculations-based system. All those who registered for the first time on 1 January 1996 or later fall under this system.

Under the contribution model, pensions are directly linked to the contributions that have been paid. The contributions paid in (the so-called ‘capital sum’) are converted into an income according to the transformation coefficient, which are calculated according to the person’s age, when the pension was granted and life expectancy.

With the introduction of the Fornero reform, the contribution-based model was extended to those whose pensions were based on the remuneration model (as long as they were registered by 31 December 1995).

Can employers deduct any state pension contributions from their taxable income?

Article 95(1) of Presidential Decree 917/1986 states that when a company's income is calculated, the costs for salaries, wages, social security contributions, allocations for retirement and pension funds and donations in cash or kind are recognised as negative components.

Are there any proposals to reform or amend the existing system?

Although its provisions are still to be discussed in Parliament, the 2019 Budget Law is expected to amend the pension system and introduce the following systems:

  • ‘Quota 100’ – which provides the opportunity for an individual to retire if the sum of their age and their years of paid contribution equals 100 years. 
  • ‘Quota 42’ – which provides the opportunity for an individual to retire, regardless of their age, if they have made 42 years of paid contributions.

Other mandatory schemes

Are employers required to arrange or contribute to supplementary pension schemes for employees? If so, briefly outline how the scheme is enforced and regulated.

Supplementary pension schemes were introduced by Legislative Decree 252 of 5 December 2005 with the purpose of supplementing the obligatory basic pension and thus contributing to an adequate level of protection for workers, together with the benefits guaranteed by the public system.

The supplementary pension is based on a system of financing with capitalisation. Within this system, every subscriber has an individual account into which contributions are made. These contributions are then invested in the financial market (eg, in shares, government securities, bonds and investment funds) by specialised private managers. Over time, these contributions will produce a variable yield, depending on market trends and management choices.

On retirement, the beneficiary will be paid an income, even in the absence of a pension deriving from the public social security system. If he or she has a pension which comprising contributions paid, this income will be paid in addition.

Everyone (eg, private and public employees, collaborators, self-employed workers and professionals) can voluntarily join a supplementary pension scheme.

Supplementary pensions are at the beneficiary's expense and, in the case of an employee, partly at the employer's expense.

Employees can supplement their contributions by allocating severance indemnity contributions to the pension fund.

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