This is a monumental topic, one that can and does fill
books. What we will provide here is an overview of the
various ways that you can or have to contribute to the
system. We will then briefly mention the question of
Totalisation and the particular situation of American
freelancers who are obliged to pay US self-employment
tax.
Employees
As an employee, you needn't worry too much about your
pension contributions as they are automatically deducted
and paid over on your behalf. Just make sure that you
receive an annual certificate from your employer detailing
the payments that they have made on your behalf to INPS
(http://www.inps.it)
or some other pension institution. If you have anything
to think about, it's what to do about a supplementary
pension (pensione integrativa), given that state pensions
are likely to be reduced over the coming decades. The
current debate concerns the extent to which your TFR
(Trattamento Fine Rapporto or severance indemnity) should
be reallocated for this purpose. Those in first-time
employment will be obliged to allocate their TFR to
a pension fund, while others will have the choice.
Entrepreneurs, partners and other business people have
only recently (1998) been obliged to join some specific
state pension scheme or another. Most service companies,
for example, have been lumped in with shopkeepers (commercianti),
even if the type of business is very different. The
idea is to make everyone contribute to the pot. In this
case, the individual has to bear the entire cost of
the contributions, which are payable quarterly on the
basis of bollettini from INPS. The amount is approximately
16% of the income declared the previous year. Note that
such contributions, being obligatory, are tax-deductible
in their entirety.
Totalisation
The whole question of international pensions and social
security treaties is extremely complicated, but totalisation
is one concept that is quite easy to understand. All
EU member nations and the other countries with which
Italy has a social security treaty apply totalisation.
Put simply, this means that all of
the years' contributions paid into the pension systems
of qualifying countries can be taken into consideration
to decide if an individual is due a pension or not.
For example, Italy will soon require a minimum of 20
years' contributions to earn an earnings-related (as
opposed to a basic, old-age) pension. If you have paid
15 years in Italy, 6 in the UK and 5 in France, then
you have a total of 26 years, amply qualifying for a
pension, even if it won't be up to the maximum (35-40
years needed). Then, if you choose to retire in Italy,
it will be up to INPS to contact the benefits agencies
in the UK and France, informing them of the situation.
They will not transfer "your" cash to INPS, but they
will pay their share of your pension. In other words,
Italy will pay 15/26ths, the UK will pay 6/26ths and
France will pay 5/26ths. And how much will that add
up to? you may ask. That's impossible to say, because
it depends on a number of variables, essentially what
your average salary has been for the last n years (n
is rising steadily in an attempt to lower the average).
However, most pension systems, even INPS, are now equipped
to give you a forward estimate of your pension situation.
Bear in mind that those paying 10/13% pension contributions
are subject to separate rules. You are paying into a
separate pot and the money you pay in is identifiably
"yours", rather than being lost in the mare magnum of
INPS. On the other hand, the rules say that your pension
will be based on the amount you paid in over the years,
not what you earned in the years prior to retirement.
This system is likely to render far lower returns than
Italy traditional pension system, essentially because
less is being paid in by you or on your behalf, but
at least it's something. It is therefore even more
important that you provide separately for a private
supplementary pension.
For more information:
The Informer
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