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Pensions for Expats in Italy

Submitted: April 2014

Italy’s pension system is essentially financed by means of social insurance contributions. It is not designed to be redistributive or egalitarian. Entitlement therefore primarily depends on your previous contributions into the system.

Private pension schemes are not commonplace in Italy. Of course, many employers do provide occupational pension schemes to ensure employee loyalty. However, these cover only 5 million Italian workers, so slightly more than 20% of working age individuals.

Italy’s occupational schemes are based on defined contributions (DC). Defined benefit (DB) schemes are only permitted for schemes established before 15 November 1992, with no new enrolees taken on since 28 April 1993.

Italian social insurance

All workers in Italy are subject to social insurance legislation, which is designed to cover various benefits, including notably:

  • Retirement pensions
  • Survivor’s pension benefits
  • Disability benefits
  • Healthcare coverage
  • Unemployment benefits

To this effect, mandatory contributions must be made to the National Welfare Institute (Istituto Nazionale per la Previdenza Sociale — INPS), although there are sector-specific schemes. However, expats may keep being subject to the social security legislation of their home country in certain cases (e.g. temporary assignment, etc.), meaning no contributions need to be paid in Italy. Such treatment may be provided for by:

  • Regulation No 883/2004 in the case of EEA or Swiss expats
  • A social security agreement for expats from other countries.

Contributions towards mandatory pension schemes qualify for tax relief in Italy, no matter if the mandatory scheme is Italian or foreign. Voluntary pension contributions are not deductible.

Private retirement saving

As a general rule, you are free to save as much as you like. However, you will have to save your after-tax euros and pay Italian taxes on any investment income you make. Italy is not necessarily the toughest country across Europe when it comes to investment taxation. For more information about this, see TAXATION – Investment Taxation for Expats in Italy.

Social security agreements

Italy may have entered into a social security agreement with your home country. These agreements are primarily designed to avoid discrimination and double social security coverage. They may cover employees as well as self-employed individuals.

In addition, social security agreements may “totalise” your periods of contributions or residence in Italy and in your home country. This is particularly helpful if your home country expects you to contribute for a long time (e.g. you must have contributed for 40 years to avoid a pension rebate). Social security agreements are only needed for expats from outside the EEA or Switzerland.

EU coordination mechanism

Any cross-border movements within the EEA or Switzerland are subject to Regulation No 883/2004. This EU regime is merely designed to coordinate the social security systems across the EU, rather than to eliminate their differences.

If you have contributed to several mandatory pension schemes across the EU, each pension schemes will first compute the pension you are entitled to according to its own national rules. This, however, may be quite discriminatory. Thus, EU law imposes some requirements on the country wherefrom you are going to claim your future pension. If you have worked there, this will be your country of residence – unless the law changes. Otherwise, it should be the last country wherein you have worked.

That country will then need to compute your pension rights as if you had made all your European contributions into its own scheme. In practice, you should check these matters with the relevant social security scheme in order to avoid disappointment. Professional advice may possibly be needed.

The EU coordination mechanism is available for non-EU nationals moving within the EU.

International superannuation planning

Private superannuation schemes are generally tax-efficient products, no matter the country in which they are opened. Thus, they are heavily regulated in order to avoid undue tax base erosion. Double taxation is possible though.

As the Italian pension system is primarily based on social insurance, your concerns will normally be limited to your foreign pension rights only. Thus, you should check:

  • how your foreign pension payouts are taxed by the Italian Government (e.g. a US Roth 401(k))
  • when you can make tax-deductible contributions to a foreign pension pot (you cannot do this as you are resident in Italy unless the contributions are mandatory), and
  • how your Italian pension benefits may be taxed in your future country of residence.

Your home country may have a tax treaty with Italy to avoid double taxation on your foreign pensions. As a general rule, pension payouts are only taxable in your country of residence, but there are exceptions.

Retaining your foreign pension arrangements may be a practical option if you do not intend to stay in Italy. Nevertheless, cross-border superannuation planning is always on a case-by-case basis. It is strongly recommended to seek professional advice regarding this matter. Consulting with the social security authorities may be helpful as well.

 

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