Occupational pension schemes

Types

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.

Restrictions

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.

Overseas employees

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.

Funding

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. 

Level of benefits

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.

Pension escalation

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.

Death benefits

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.

Retirement

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).

Early distribution and loans

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.

Change of employer or pension 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.

Investment management

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).

Reduction in force

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.

Executive-only plans

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.

Unionised employees

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).

Law stated date

Correct on:

Give the date on which the above information is accurate.

22 May 2019