The Italian Pension System for Expats

A practical guide to understanding pension funds in Italy

My name is Alessia Barachetti and I work as a Personal Finance Advisor supporting expats, non-residents and people looking to move to Italy to streamline and organize their financial life here. 

• Public vs private pensions in Italy
• Types of pension funds
• Why consider a pension fund in Italy?
• The drawbacks of pension funds
• What types of contributions can go into a pension fund?
  • What should you do as an Expat?
• Cross-Border Considerations
• Transferring foreign pensions to Italy and retiring here

The basics: public vs private pensions in Italy 

• Public Pension (INPS contribution): it is mandatory for all workers, so you won’t have a choice in whether to participate or not… Contributions are paid by you and your employer (if employed) and go into the state system. When you retire, you will receive a monthly pension from INPS, based on your contributions and years of work in Italy. We will see in a later paragraph what happens if you leave the country. 
• Private Pension Funds (Previdenza Complemetare): as the State pension (INPS) will often be insufficient to guarantee the same standard of living you might be used to, the State incentivizes the adoption of additional (private) contributions into pension funds. You and your employer make contributions (regularly or occasionally) into a pension fund, which is then invested in financial markets by professional managers. Over time, this creates an additional pot of money to supplement state pensions. 

Types of Pension Funds

There are three such types of Pension Funds related to the “Previdenza Complementare”: 

1. Closed Funds (aka “Fondi Chiusi” or “Fondi Negoziali”): these are reserved for specific categories of workers (e.g. metalworkers, bank employees, workers in the chemical industry, etc) and are linked to a specific employment type. They usually include an employer contribution in addition to yours and are generally very low cost. If you have access to one of these via your employer, these are usually the most convenient option. On the downside, they are only available if you belong to a covered category and in some cases, the investment options offered might be too limited. 
2. Open Pension Funds (aka “Fondi Aperti”): these pension funds are offered by banks, insurance companies and asset managers. They are open to everyone: employees, freelancers, non-workers… and even young kids! Contributions into these funds are flexible and it is usually very easy to subscribe. Costs are slightly higher than those of closed funds, but often still very accessible. 
3. Individual Pension Plans (aka “Piani Pensionistici Individuali” or “PIP” in short): PIP are insurance-based pension contracts with investment and protection features. While they might have more or different investment options, they often have relatively higher management fees and therefore the final convenience of such products has to be carefully checked. 

Why consider a pension fund in Italy? 

The main advantage is tax benefits… Not only in the future, once you start receiving your pension, but even today! Let’s look into the details:  

• Tax Deduction today: contributions made into a Complementary Pension Fund are deductible from your taxable income up to €5’164.57 per year (higher in some specific cases). This means that depending on your Income Tax (IRPEF) Bracket, you immediately save between 23-43% of the amount contributed. And for contributions above the €5’164.57 limit? You will not be able to deduct them for your income but, if correctly reported (I’ll explain how later on), they won’t be taxed at payout. 
• Lower tax at retirement: when you receive your pension fund benefits, the amount is taxed at a reduced rate, which varies between 15% and 9% depending on how long you have subscribed to a complementary pension fund. Such taxation is much lower than the normal income tax in Italy. 
• No wealth tax: compared to other type of investment vehicles, pension funds are not subject to the 0.2% annual wealth tax (“imposta di bollo”). 

The drawbacks of pension funds

Picture by Freepik

• Limited withdrawal possibilities: unlike a regular savings account or investment portfolio, pension funds are designed for retirement. You can only withdraw early in specific circumstances, such as serious illness, buying of your first home, or a period of unemployment. In some cases, you are also required to have been enrolled in a pension fund for a minimum number of years before qualifying for early withdrawal options.  
• Limited investment options: pension funds typically offer a small range of pre-defined investment lines (from conservative to dynamic). Compared to retirement accounts in the US and the UK, Italian funds tend to be much less flexible. In the US, you often have a wide range of mutual funds, ETFs and self-directed investment choices. In Italy, your options are usually limited to pre-defined and actively managed investment lines offered by the specific fund. 
• Higher costs vs other investments: while some negotiated (closed) and a few open funds have quite low fees, many others and especially PIPs can be relatively expensive. Over decades, higher management fees can significantly reduce your long-term returns compared to low-cost index funds or other investment vehicles.

For these reasons, I often advise my clients not to put all their saving capacity into a Pension Fund. Instead, it is usually better to combine pension contributions with other forms of investment, ensuring both tax efficiency and flexibility.

What types of contributions can go into a pension fund?

If you’ve heard your Italian colleagues talking about  “TFR”, “Contributi Datoriali da CCNL”, “Versamenti individuali”, you might have felt a bit lost in the terminology… and no wonder! Let’s break it down step by step: 

• TFR – Trattamento di Fine Rapporto (i.e. Severance Pay): If you are an employee in Italy, by law you accrue a portion of severance pay every month, roughly equal to one month’s salary per year. This is your TFR. You can either:
  • Leave it with your employer, where it is revalued annually at 1.5% + 75% of inflation and will be paid out once you change employer (and taxed according to your income tax bracket), or 
  • Transfer it into a pension fund, where it can be invested and, at payout, benefit from a more favorable taxation. 

Importantly, your TFR contributions paid into a pension fund do not count towards the €5’164.57 annual tax-deductibility limit. 

• Contributo Datoriale (Employer Contribution): if you joined a closed pension fund and commit to a minimum amount yourself, your employer will often add their own contribution. The amounts and rules are typically defined by the National Collective Labour Agreement (CCNL – Contratto Collettivo Nazionale di Lavoro), which sets employment standards in Italy. This contribution is usually expressed as a percentage of your salary and is in addition to your pay—in other words, it’s essentially “free money” you would miss out on if you don’t join. Employer contributions do count towards the €5,164.57 annual tax-deductibility limit.
• Contributo Individuale (Individual Contribution): these are the amounts you personally decide to pay into the fund. You can set them up as a % of your salary each month, or make extra payments via bank transfer whenever you wish. All individual contributions do count towards the €5’164.57 annual tax deductibility limit.  

So… what should you do as an Expat? 

As an expat in Italy, the best choice for your may vary depending on your employment status and your future plans. 

• If you plan to stay in Italy long term, then it is often a no-brain (though not always!).
• If you are an employee, tax resident in Italy and are planning to stay in Italy for at least a few years, then it usually still makes sense to join a Pension Fund in order to benefit from the tax deductions and additional employer contributions in the short term. 
• If you are Self-Employed or a Freelancer, you can still join a pension fund however (i) You won’t benefit from tax deductions in case you are into the so-called “Regime Forfettario” (ii) You won’t benefit from Employer contributions. However, it might still make sense if you are planning to stay in Italy till retirement and might end up working as an employee at some point. 
• If you plan to stay only temporarily or do not benefit from tax deductions, then things get more complex and it might not be the best solution for you to invest into a pension fund. 

In short, for many expats planning to stay in Italy long-term, opening a pension fund is an excellent way to save on taxes and build an additional retirement safety net. For short-term stays, it may be less relevant, but keeping a fund open for the future can still be a smart move, even with no/minimal contributions. 

In any case, I suggest you consult a Financial Advisor to discuss your specific situation and find out what is best for you.

Cross-Border Considerations

• Public pension contributions within the EU: thanks to EU regulations, the years you work in Italy count towards your total pension rights across Europe. When you retire, each country where you worked will pay its share. This means you will receive several pensions from the different EU countries you have worked in but the years you worked in ALL countries will count towards making you reach the requirements. 
• Public Pension contributions outside the EU: it depends whether Italy has a bilateral social security agreement with your country. These agreements might allow you to account for the years you worked in Italy/abroad, avoid double contributions, receive the Italian pension even if you do not reside in the country. 
• Private Pension Funds: leaving Italy per se is not an eligible reason for withdrawal. Standard withdrawal rules will apply: e.g. you will be able to withdraw even from abroad if you reach retirement age by Italian standards, purchase your first home, need money for serious illness, or are unemployed (yes, even for a few days only… so it might be an option when changing jobs). If you leave Italy but plan to move back one day, it might be however a very good idea leave your pension fund open even if you move abroad (even if you don’t actively contribute into it). 

Transferring foreign pensions to Italy and retiring here

Are you moving to Italy as a retiree or are you considering transferring your pension savings from abroad? Here are a few hints: 

• Transferring a pension fund from abroad: Unlike some countries, Italy does not have a standardized system (such as UK’s QROPS) that allows foreign pension funds to be directly transferred into an Italian pension fund. Whether a fund transfer is possible or not, it depends heavily on the rules of the country where your pension is held and on any bilateral agreements between that country and Italy. In many cases, it is simpler (and often advisable) to keep your pension savings in your home country and receive them from abroad, rather than moving them into an Italian scheme.  

Receiving a Foreign Pension as a resident in Italy: if you retire in Italy, become a tax resident here and start receiving a foreign pension, that income will generally be taxable in Italy. The exact taxation will depend on your specific circumstances and you should consult a tax expert to verify which regime applies to you… don’t forget that Italy has Special Regime for Foreign Pensioners which might be applicable to you! 

If navigating the landscape of private pension funds in Italy feels overwhelming, getting personalized financial advice can help navigate the complexities.