At Work in Milan

Pension plans in Milan

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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.

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 ( 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.

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

Update 11/11/2003


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