Complementary social security – in addition to the compulsory one – deserves consideration by workers, as well as company owners and clients of work services – to guarantee subsistence and dignity in the post-work phase of life. Also taking into account the associated tax and social security benefits. An insight.
1) Pensions in Italy, gloomy scenario
The pension scenario in Italy it is gloomy, as stated in the latest INPS report (2022). One pensioner out of three lives on a pension of less than 1.000 euros per month. In addition to other problems:
- less than half of the poorest pensioners (20% of the total) receive a social allowance or a survivor's pension (survivor's or indirect pension),
– inequality in pension income increased by an average of 3% over the period 1995-2021. And young people have to work on average at least 3 years longer,
- women have been penalized by an extension of working life now almost in line with that of men,
– INPS openly declares the uncertainty of the sustainability of the pension system in the medium term. When i baby boomers will retire but economic and productive growth will be insufficient, (1)
– inflation it reached double digits in 2022, we add, but the adjustment of pensions is only partial. (2) And the distinction between the cost of living and the sums disbursed is destined to worsen.
2) Complementary pension. Premise
Membership to the complementary pension systems allows each worker to obtain a supplementary pension, with respect to the compulsory one provided by the INPS. The matter is currently governed by Legislative Decree 252/2008. (3)
All workers – public and private employees, self-employed workers, freelancers, people who carry out unpaid work, occasional workers, etc. – can join one of the 4 supplementary pension systems available.
2.1) The four systems
The four systems supplementary pension schemes can be divided into two categories:
a) funds with limited access. This is the case of closed-end funds, aimed at individual corporate contexts, and pre-existing pension funds (established on the basis of contemporary regulations),
b) universal systems. Which i
– open funds, set up by banks, insurance companies, asset management companies (SGR) and stock brokerage companies (SIM), and
– individual pension plans (PIP), which follow.
3) PIP, individual pension plans
PIPs – individual pension plans – are part of the individual pension schemes governed by art. 13 of Legislative Decree 252/05. They are subject to a regulation based on the COVIP (Pension Fund Supervisory Commission) directives, also to guarantee the completeness and updating of the necessary information. (4)
The contribution it is free and voluntary. Each worker can decide how much to pay on the PIP (e.g. on a monthly or annual basis), without any consecutive obligation. And it is possible to change the size of this amount over time. For employees, there is also the possibility of receiving an additional contribution from the employer.
3.1) PIP and TFR
Employees of the private sector have the right to allocate severance pay (TFR) to the PIP (individual pension plan). The decision can be communicated to the employer with special forms (TFR1, TFR2):
– within 6 months of hiring, with retroactive effect,
– at a later date, for the severance pay accruing from the communication.
The same is true in the event that, through tacit consent, the destination of the severance indemnity has already been addressed to collective pension schemes provided for by collective agreements or other collective schemes established by INPS.
3.2) Supplementary annuity
The adherents pension funds can request their split and advance through an anticipated temporary supplementary annuity (RITA), attainment of the age starting from ten years prior to reaching the age for the old-age pension. This benefit is also subject to a reduced rate. (5)
It is also possible request an advance of the position accrued, in the following circumstances and conditions:
– health expenses for themselves, spouses or children for extraordinary therapies and interventions, for an amount <75% of the accrued position. At any time,
– purchase of a first home for oneself or one's children, and first home renovations. The request is possible 8 years after enrollment in the PIP, within 75% of the position accrued,
– other needs. In these cases, after 8 years, the advance can reach 30% of the sums paid. (6)
Total redemption of the positions accrued, the following can always be requested:
– after 8 years from the date of accession, in cases of permanent disability and reduction to one third of working capacity. In addition, in the event of termination of employment,
– by designated heirs and/or beneficiaries, in the event of the member's death, even before he has acquired the right to a pension.
In other hypotheses, the total and partial redemption is governed by contractual conditions. (7)
4) Tax advantages
The tax benefits associated with voluntary contributions are worthy of note, for both workers and businesses.
4.1) Benefits for workers
Employees can take advantage of the following tax benefits:
– deductibility for IRPEF purposes up to 5.164,57 euros (7.746,86 euros, from the 6th year, for workers with first job after 1.1.07 without a contributory position),
– deductibility applicable also for dependent family members,
– reduced taxation (15%) of benefits disbursed in the form of a lump sum and/or annuity, with a reduction in the rate (-0,3% each year, up to a maximum of 9%), starting from the 15th year of continuous voluntary contribution. The same applies to the severance indemnity, instead subject to a minimum taxation of 23% where kept in the company.
4.2) Benefits for businesses and employers
Businesses and employers, in turn, benefit from some advantages in relation to the choice of workers to allocate the TFR to a PIP:
– reduction in labor costs, thanks to the exemption from paying the contribution on 0,2% of the employee's salary to the INPS guarantee fund,
– tax deduction, for an amount equal to 6% (companies with up to 49 employees) and 4% (companies with over 49 employees) of the severance pay paid to the supplementary pension scheme,
– exemption from the mandatory revaluation of the severance indemnity, which currently involves an annual increase of +15%, as well as an increase on an ISTAT basis (75% consumer price index),
– TFR benefits paid by the PIP manager, with relief of the employer from unscheduled cash disbursements,
– reduction of the so-called improper charges, with exemption from social security contributions on the 'accruing' severance indemnities assigned to the PIP, as regards family allowances, maternity and unemployment.
5) Complementary pension, EU rules
The European discipline of supplementary pension provision is based on directives 98/49/EC and 2014/50/EU (8,9). Where attention has been paid, among other things, to ensuring the preservation of acquired pension rights and the benefits of supplementary pensions even outside the member state of origin of the worker. The EU rules are based on the following criteria:
1) acquisition. Pension rights are irrevocably acquired no later than three years after the start of the employment relationship. Employee contributions are never lost. If an employee leaves a pension scheme before having accrued entitlements, he gets a refund of his contributions, (10)
2) safeguard. The worker who leaves a pension scheme has the right to maintain the accrued rights, subject to accepting the payment of the relative entitlements. The pension rights of former workers must be protected in the same way as those of current workers,
3) information. Workers are entitled to information on how any mobility may affect their pension entitlements. Former workers and their survivors (in systems that extend benefits to them) are entitled to information on the value and treatment of their rights.
6) Provisional conclusions
European politics it has failed every goal of social justice, as we have seen. (11) And theausterity it has exacerbated social inequalities, exposing a growing share of the population – 21,7% in 2021 (Eurostat) – to the concrete risk of poverty and social exclusion. (12)
The EU economy is falling apart due to the nefarious ongoing conflict, with a 45,7 billion trade deficit in September 2022. The privatization of welfare, like that of health care, are the foreseeable consequences of this same policy.
All the more reason supplementary pension systems – such as life and health insurance, which are in turn deductible (13) – deserve the attention of each of us today, as indispensable rescue anchors for the protection of one's own and one's loved ones.
Dario Dongo and Emanuele De Luca
(1) INPS (2022). XXI Annual Report. https://www.inps.it/dati-ricerche-e-bilanci/rapporti-annuali/xxi-rapporto-annuale
(2) Giorgetti signs decree on pension adjustment. https://www.mef.gov.it/ufficio-stampa/comunicati/2022/MEF-Giorgetti-firma-decreto-su-adeguamento-pensioni/ MEF. Press release, 9.11.22
(3) Legislative Decree 5.12.05 no. 252 and subsequent amendments. Regulation of supplementary pension schemes. Text updated on 9.10.19 on Normattiva https://bit.ly/3g553jP
(4) COVIP (Commission for Supervision of Pension Funds). v. https://www.covip.it/la-covip-e-la-sua-attivita
(6) Advances are subject to a 23% substitute tax, with the exception of those motivated by health expenses to which a 15% rate is applied, with a 0,30% reduction for each year following the 15th
(7) A substitute tax of 15% is applied to redemptions due to disability and death, a reduction of 0,30% for each year starting from the 15th. Other types of redemptions are instead subject to a 23% rate
(8) Dir. 98/49 / EC, on safeguarding the supplementary pension rights of employed and self-employed persons moving within the European Community https://bit.ly/3UOxJMK
(9) Directive 2014/50/EU, on minimum requirements to increase the mobility of workers between Member States by improving the acquisition and preservation of supplementary pension rights https://bit.ly/3E7gWh3
(10) National legislation governs transfer cases from or to supplementary pension funds of other Member States
(11) Dario Dongo. Social justice, world day of shame. Equality. 20.2.20
(12) Sabrina Bergamini. Poverty in Europe, more than a fifth of the population at risk. Equality. 20.9.22
(13) NB: the difference between the concepts of deductibility and deductibility:
– tax deductions are concessions that contribute directly to determining taxable income, for the purpose of calculating taxes. The sum of the various deductible charges is therefore subtracted from the total income, to obtain the taxable income,
– tax deductions, on the other hand, intervene in the subsequent phase of calculating taxes. Therefore, they do not affect the quantification of taxable income but only the disbursement to be paid for a given tax.
Committee for the planning and coordination of financial education activities. V. https://www.quellocheconta.gov.it/it/news-eventi/mese_educazione_finanziaria/