Supplementary pension plans-supplementing compulsory ones-deserve consideration by workers, as well as business owners and principals of labor services-to ensure subsistence and dignity in the post-work phase of life. Also taking into account the associated tax and social security benefits. Insight.
1) Pensions in Italy, gloomy scenario
The pension scenario in Italy is bleak, as stated in the latest INPS report (2022). One in three pensioners 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 percent of the total) receive a social allowance or survivor pension (survivor or indirect pension),
– pension income inequality increased by an average of 3 percent, over the 1995-2021 period. And young people have to work at least 3 years longer on average,
– women have been adversely affected by an extension of working life now roughly aligned with that of men,
– INPS openly declares the uncertainty of the sustainability of the social security system in the medium term. When baby boomers retire but there is insufficient economic and productive growth, (1)
– inflation reached double digits in 2022, we add, but the pension adjustment is only partial. (2) And the discrepancy between cost of living and amounts disbursed is bound to worsen.
2) Supplementary pension plans. Foreword
Joining supplementary pension systems allows every worker to obtain a supplementary pension, compared to the mandatory pension provided by INPS. The subject is currently regulated by Leg. 252/2008. (3)
All workers-public and private employees, self-employed, freelancers, people doing unpaid work, casual workers, etc. – can join one of the four supplementary pension systems available.
2.1) The four systems
The four supplementary pension systems can be distinguished into two categories:
(a) limited access funds. This is the case with closed funds, aimed at individual corporate settings, and preexisting pension funds (established under coextensive regulations),
(b) universal systems. What the
– Open-end funds, established by banks, insurance companies, asset management companies (SGRs) and securities brokerage firms, (SIMs), and the
– Individual pension plans (IPPs), of which follows.
3) PIP, individual pension plans
PIPs-individual pension plans-come under the individual pension forms regulated in Art. 13 of Legislative Decree. 252/05. They are subject to a regulation based on COVIP (Pension Fund Supervisory Commission) guidelines, also to ensure that the necessary information is complete and up-to-date. (4)
Contribution is free and voluntary. Each worker can decide how much to pay into the PIP (e.g., on a monthly or annual basis), with no obligation to be consecutive. And it is possible to change the amount of this amount over time. For employees, there is also the possibility of receiving an additional contribution from the employer.
3.1) PIP and severance pay.
Employees in the private sector have the option to allocate severance pay (TFR) to the PIP (individual pension plan) as well. The decision can be communicated to the employer with special forms (TFR1, TFR2):
– within 6 months of employment, effective retroactively,
– at a later time, for the severance pay that accrues from the communication.
The same applies if, through silence-assent, the allocation of severance pay has already been directed to collective pension forms provided by collective agreements or other collective forms established by INPS.
3.2) Supplementary pension
Members of pension funds can apply for their fractionation and anticipation through a temporary early supplementary annuity (RITA), attainment of retirement age from ten years prior to reaching the age for old-age retirement. This benefit is also subject to a subsidized rate. (5)
3.3) Advances
It is also possible to request an advance of the accrued position if the following circumstances and conditions are met:
– health care expenses for oneself, spouse or children for extraordinary therapies and operations, in the amount <75% of the accrued position. At any time,
– purchase of the first home for themselves or their children, and first home renovations. Application is possible after 8 years of PIP enrollment, within 75% of the accrued position,
– other needs. In these cases, after the 8 years have passed, the advance can be up to 30% of the amounts paid. (6)
3.4) Redemptions
Total redemption of accrued positions can always be requested:
– after 8 years from the date of accession, in cases of permanent disability and reduction to one-third of the ability to work. As well as in case of termination of employment,
– by heirs and/or designated beneficiaries in the event of the member’s death, even before the member has accrued the right to a pension.
In other cases, full and partial redemption is regulated through contractual conditions. (7)
4) Tax advantages
The tax benefits associated with voluntary contributions are noteworthy, for workers as well as businesses.
4.1) Benefits for workers
Employees are eligible for 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 employment after 1.1.07 with no contribution position),
– Deductibility also applicable for dependents,
– Reduced taxation (15%) of benefits paid in the form of lump sum and/or annuity, with a reduced rate (-0.3% each year, up to a maximum of 9%), starting from the 15th year of continuous voluntary contribution. The same applies to severance pay, which is instead subject to a minimum taxation of 23 percent where it is kept in the company.
4.2) Benefits for enterprises and employers
Companies and employers, in turn, enjoy certain benefits related to employees’ choice to put their severance pay into a PIP:
– Reduction in labor costs by exempting the payment of the contribution on 0.2 percent of the employee’s salary to the INPS guarantee fund,
– tax deduction, in the amount of 6 percent (enterprises up to 49 employees) and 4 percent (enterprises above 49 employees) of the severance pay paid to supplementary pension funds,
– Exemption of mandatory revaluation of severance pay, which currently involves an annual increase of +15%, plus surcharge on an ISTAT basis (75% consumer price index),
– severance benefits paid by the PIP manager, relieving the employer of unplanned cash outlays,
– abatement of so-called improper charges, with exemption of social security contributions on the portions of ‘maturing’ severance pay contributed to the PIP, with regard to family allowances, maternity and unemployment.
5) Supplementary pensions, EU rules.
The European framework for supplementary pensions is based on Directives 98/49/EC and 2014/50/EU (8,9). Where care was taken, among other things, to ensure the preservation of acquired pension rights and the benefits of supplementary pensions even outside the worker’s home state. EU rules are based on the following criteria:
1) acquisition. Pension rights are irrevocably acquired no later than three years after the start of employment. Workers’ contributions are never lost. If an employee leaves a pension scheme before having accrued his or her rights, he or she gets a refund of contributions, (10)
2) Safeguard. A worker who leaves a pension scheme is entitled to retain accrued rights, except to accept payment of the relevant entitlements. The pension rights of former workers should 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 rights. 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) Interim Conclusions
European policy has failed every social justice goal, as we have seen. (11) Andausterity has exacerbated social inequalities, exposing a growing share of the population-21.7 percent in 2021 (Eurostat)-to the real risk of poverty and social exclusion. (12)
The EU economy is falling apart because of the dastardly ongoing conflict, with 45.7 billion trade balance deficit as of September 2022. The privatization of welfare, like the privatization of health care, are the predictable consequences of this same policy.
All the more reason that supplementary pension systems-such as life and health insurance, which are themselves deductible (13)-deserve the attention of each of us today, as indispensable lifelines for the protection of ourselves and our loved ones.
Dario Dongo and Emanuele De Luca
Notes
(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 n. 252 as amended. Discipline of supplementary pension forms. Text updated 9.10.19 on Normattiva https://bit.ly/3g553jP
(4) COVIP (Pension Fund Supervisory Commission). V. https://www.covip.it/la-covip-e-la-sua-attivita
(6) Advances are subject to 23% substitute tax, except for those motivated by health care expenses on which a 15% rate applies, with a 0.30% reduction for each year after the 15th
(7) A substitute tax of 15%, reduced by 0.30% for each year starting from the 15th, is applied to surrenders for disability and death. Other types of redemptions, however, are subject to the 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) Dir. 2014/50/EU on minimum requirements for enhancing worker mobility between member states by improving the acquisition and preservation of supplementary pension rights https://bit.ly/3E7gWh3
(10) National legislation governs when transfers to or from supplementary pension funds in other member states are made
(11) Dario Dongo. Social justice, world day of shame. Égalité. 20.2.20
(12) Sabrina Bergamini. Poverty in Europe, more than a fifth of the population at risk. Égalité. 20.9.22
(13) NB: The difference between the concepts of deductibility and deductibility:
– tax deductions are benefits that directly contribute to taxable income, for the purpose of calculating taxes. The sum of the various deductible charges is therefore subtracted from total income to obtain taxable income,
– Tax deductions, on the other hand, intervene at the next stage of tax calculation. They therefore do not affect the quantification of taxable income but only the outlay to be paid for a given tax.
Committee for planning and coordination of financial education activities. SEE https://www.quelloche conta.gov.it/it/news-eventi/mese_educazione_finanziaria/
Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.
Insurance consultant specializing in supplementary pension schemes.
