Commissione di Vigilanza sui Fondi Pensione (COVIP) commissioner, Mariacristina Rossi, provides an overview of the Italian pensions sector

The Italian pension system is composed of a compulsory notional defined contribution (NDC) pension system and a voluntary, privately funded supplementary pension system. The first pillar state pension represents the primary retirement vehicle, operating on a pay-as-you-go (PAYGO) basis, which means the pensions of current retirees are paid with contributions from workers.

Over time, legislative reforms – starting with Dini’s reform in 1995 – have transitioned the system from a defined benefit to a NDC model. Every pension contribution paid by workers will contribute, forming the pension pot at retirement, generating a one-to-one relation between the contribution paid and retirement income, which is entirely annuitised. The (notional) return rate of the pension contribution is the GDP growth. In Italy, public retirement represents the primary source of income for most retirees, whose contribution rate is set at 33 per cent.

The supplementary pension system consists of the second and third pillar. The second pillar includes occupational pension funds, accessible only to employees or self-employed individuals meeting specific collective agreement criteria. The third pillar is open to all individuals and includes open pension funds or personal pension funds, often linked to life insurance contracts.

Employees can transfer their severance pay (TFR) to pensions, which is a sum accumulated over time through yearly contributions set aside by employers at around 7 per cent of annual income. This sum is revalued at a legally established rate (1.5 per cent plus 75 per cent of the inflation rate) up to retirement or employment termination. In the second pillar, contributions are also paid by employers. Additional contributions are encouraged with tax exemption up to €5,164.57.

After retirement, at least half of the accumulated sum in a supplementary pension has to be withdrawn as an annuity while the remaining part as a lump sum.

In 2007, automatic enrolment was introduced for new private sector employees, allowing them to transfer TFR to pension funds, with a window of six months to opt out. If no decision is made, workers are automatically enrolled in a default pension fund. A similar policy was extended to the public sector in 2021 and 2023, covering most public employees. Since 2015, employer contributions to supplementary pensions through collective agreements, known as ‘contractual adhesion’ have also been possible.

At the end of 2024, 9.95 million workers were enrolled in supplementary pensions, with total assets under management reaching €243 billion, equivalent to 10.8 per cent of GDP and 4 per cent of Italian households’ financial wealth. Over the past 10 years, pension funds have recorded an annual average return rate of up to 4.7 per cent on equity investments, while the equity investment average return has been up to 13 per cent during 2024.

Although enrolment has been constantly increasing, participation remains limited, especially among certain categories: Self-employed workers, women, young employees, workers in small firms, and individuals living in Southern Italy. Supplementary pension coverage is, instead, higher among people with higher financial and pension knowledge.

The coverage and disparities of the supplementary pension system stem from broader economic and labour market issues, as well as the large contributions paid to the PAYGO system, displacing additional contributions to the supplementary system. Financial and pension education programmes coupled with effective automatic enrolment schemes represent a powerful driver for the development of the system.

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