The Italian social security system is made up of three pillars: the first pillar consists of compulsory social security, the second of supplementary social security on a collective basis and the third of individual complementary social security.
Compulsory social security
Compulsory social security in Italy is essentially managed by INPS (National Social Security Institute) and is based on a pay-as-you-go system: the contributions paid by active workers provide pension benefits for workers who are no longer active. If the number of pensioners exceeds that of the members of the workforce, the system suffers imbalances. Up until 1995, the calculation of benefits was performed using the salary method: that is, it was based on the average salary and income received in the last few years of
work by multiplying it by the years of contributions and by a specific rate. In 1995 we moved to the contribution system: the calculation of benefits is performed on the basis of the contributions actually paid over the course of life multiplied by a given transformation coefficient.
The supplementary pension
The complementary providence, or supplementary to the one required by law, is implemented by free and voluntary choice through pension funds, associative bodies set up as legal entities managed by insurance companies, banks, SIMs or SGRs. The member makes free and voluntary payments to the chosen Fund and the pension benefit consists of a life annuity which is added to the public pension. An employee's severance indemnity can also be transferred directly to the pension fund. The right to the pension benefit is acquired after at least 5 years of adherence to the supplementary pension scheme and only once the requisites required to obtain the public pension have been met. Before this deadline it is possible to withdraw only part of the sums constituting the pension fund, in certain situations and not before having joined the pension scheme for at least 5 years.
CLOSED (OR NEGOTIATIONAL) PENSION FUNDS AND OPEN PENSION FUNDS
Closed-end pension funds are reserved for an audience of people with similar characteristics: the same job category, the same company, the same territorial affiliation, etc. They are also defined as negotiating funds because they arise from negotiation acts between the social partners, such as collective or trade union contracts and agreements, regulations of entities or companies, regional agreements, agreements between freelancers, etc. Closed-end pension funds can only be for collective membership, this means that one joins by free individual choice but as part of a defined community. Negotiated funds are set up by the social partners but management is entrusted to an external professional investor such as a bank or insurance company. Open pension funds are instead intended for an indefinite audience of subjects: everyone can join and membership can be both individual and collective. There is identity between the institution and the manager, which can be a bank, an insurance company, a SIM, an SCR. The authority of
supervising pension funds is the COVIP (Commission for Supervision of Pension Funds).
PIP, INDIVIDUAL SOCIAL SECURITY PLANS (or FIP, INDIVIDUAL PENSION SCHEMES)
The PIPs, or Individual Pension Plans, were introduced by the decree of 18 February 2000 number 47 and have been in force since 1 January 2001. They are particular life policies, which can be set up and managed only by insurance companies and can only be single subscription . The benefits obtainable with a PIP are the same as those obtainable from a pension fund, however the way resources are managed changes.
PIPs can be of the type revalued or Unit Linked. In PIPs of the revaluable type, the repayment of principal and sometimes a minimum return is guaranteed. The sums that are allocated to it flow, as for life policies, into the separate management of the companies and enjoy a reduced system of seizure and foreclosure. The sums destined for Unit Linked PIPs, on the other hand, are invested in funds within the company or in a mutual investment fund. A minimum return is not guaranteed and it is possible to choose between various management lines depending on one's risk appetite.
