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 (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 wull 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 therefoire even more important
that you provide separately for a private supplementary pension.
INPS (Istituto Nazionale Previdenza Sociale): www.inps.it
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