The Istituto Nazionale della Previdenza Sociale (INPS) is the largest social security and welfare institute in Italy and one of the most important on a European level. It has a budget (of approximately 400 billion Euro between receipts and payments) which is second only to state budget. Both private sector employees and self-employed workers are insured at INPS. All companies operating in Italy are registered with INPS.
For more information on the INPS pension system check the website of Istituto Nazionale della Previdenza Sociale (INPS)
2011 Pensions Reform
– The retirement age for women working in the private sector is 60 to 62, and then will increase to 66 in 2018.
– The retirement age for all other workers will increase from 65-66 in 2018.
– Since 2012 the contribution-based system extended to all workers.
– Employees wishing to retire need to contribute for a minimum of 20 years, and the amount has to be equal to at least 1.5 times the social pension.
In Italy there are two types of pension funds:
– Closed or contractual pension funds which are implemented either as company pension funds by a single company or as industry-wide pension funds set up by the employers’ association and the trade unions for a specific group of participants;
– Open pension funds that are offered by banks, insurance companies or investment management companies for a generic group of participants, i.e. the self-employed.
All pension funds have to sign an agreement with an external investment manager that can only be an insurance company, a bank or a registered asset management company (‘Societa Gestione Risparmio’ or SGR).
Today, all pension funds now operate on a defined contribution (DC) basis, as this is the only permitted type of pension plan. Defined benefit (DB) plans are restricted to pre-existing funds. There are no minimum funding requirements.
Termination indemnity payments (TFR)
Upon termination of employment for any reason, employers have to pay a termination indemnity (‘Trattamento di fine Rapporto’ or TFR) to all employees. In Italy the TFR serves as a backup in the event of redundancy or as an additional pension benefit after retirement. Severance pay is calculated as 6.9% of each year’s annual salary, revalued on the basis of 75% of inflation plus a fixed rate of 1.5% during the period of accrual, and is paid as a lump sum. Assuming that the TFR benefit is accumulated throughout a full career, it is expected to provide a pension of 10% to 15% of final pay.
Before 1993, there was no coordinated legislation governing pension provision and the only private pensions available were the pre-existing funds, which had no clear legal structure or processes. As a consequence, employers who established pension plans were able to structure the benefits they offered and the means of funding them almost as they wished. Pension funds established before November 15, 1992 (pre-existing funds) may preserve their old tax treatment, provided that they were closed to new entrants by April 28, 1993.
The Organisation for Economic Co-operation and Development (OECD) – http://www.oecd.org