Sections

Italian pensions industry baulks over plans for tax hike on pension funds

Related images

  • Rome, Italy

Related Categories

Italian pension fund associations have attacked shock plans to raise the tax rate for pension fund investment income from its current level of 11.5% to 20%.

The government had already increased the rate from 11% last July, officially as a “temporary” measure, but now intends to hike it up by nearly three-quarters. 

And pension funds for professional groups (casse di previdenza) will see their tax rate on investment gains go up from 20% to 26%.

The new plans are included in the Parliamentary Bill for Italy’s 2015 fiscal Budget, the so-called Stability Law.

The draft budgetary decree was agreed by the Cabinet on 15 October, and presented to Parliament on 24 October.

The Bill also includes proposals to include employee severance pay – Trattamento di Fine Rapporto (TFR) – in the individual’s annual income, if part of this is paid to them before they actually leave their jobs.

Last month, prime minister Matteo Renzi announced that workers could choose to receive severance benefits directly each month rather than being held back until the end of their employment.

If they opt to take the cash in this way, it will be taxed at their marginal rate in the year it was received.

Marco Abatecola, general secretary at Assofondipensione, the association of collective negotiation-based pension schemes said: “We are opposed to the tax increase because it will reduce future pensions, and it risks creating instability in the system, alienating workers from pension funds.”

Assofondipensione has started separate talks with the government and Parliament, and has sent a position paper to the Chamber and Senate finance committee that sets out Assofondipensione’s position and the changes it would like to see in the Stability Law.

It will also soon be starting a communication and information campaign to promote the advantages of complementary pension schemes to workers, urging them to enrol in these schemes.

Laura Crescentini, technical coordinator at Assoprevidenza, the Italian association for supplementary pension provision, said: “We are against these measures because we have a pure defined contribution system, so the increase will directly affect future pension levels and discourage people from joining pension funds.

“Moreover, it would create problems in moving towards an EET system [exempt contributions, exempt investment income and capital gains of the pension institution, taxed benefits], which is used by most countries in the European Union.”

Claudio Pinna, head of consulting at Aon Hewitt in Rome, said: “We were very surprised by these changes because they go against all the reforms of the pension system that have been carried out in the recent past. This is no way to incentivise saving by employees.”

He added: “They will create a lot of problems. But it is very likely these changes will happen.”

Pinna warned that the proposals could lead to an exodus of pension savings out of Italy.

“If the changes happen,” he said, “it might be better for Italian employees to transfer their pension provision in Italy to another pension fund operating under the EU cross-border directive, assuming you get the same investment returns in all countries. At present, the obvious host country would be Belgium.”

Pinna said there was also a need to clarify when the changes would be implemented, and warned the changes could be enforced retroactively, from 1 January 2014.

The government has said the proposals could be reversed if it can find an equivalent source of revenue.

But Pinna considers this unlikely.

Meanwhile, the same Budget package also includes a tax increase on investment returns of Italian foundations, including foundations of banking origin, whose net assets amounted to €40.9bn as at 31 December 2013.

The draft Stability Law 2015 would reduce the amount of exemption on dividends received from 95% to 22.26%, while in contrast, it remains unchanged at 95% for profit-making private entities.

It means the tax base on dividends received by foundations rises from 5% to 77.74%.

Consequently, the taxation increases by 20 percentage points, with retroactive effect from 1 January 2014.

Acri, the Italian association representing foundations of banking origin and savings banks, said the Stability Law would tax foundations of banking origin far more than for-profit private entities and was “incomprehensible to those who want to enhance the role of the voluntary sector”.

It said the move could have a grave impact on support for activities already planned.

The European Foundation Centre has calculated that the tax burden on foundations of banking origin alone has risen nearly four-fold since the €100m that was levied in 2011, to reach €360m in 2015.

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2498

    Asset class: Fixed Income Investment Grade.
    Asset region: Global Developed Markets.
    Size: $50m.
    Closing date: 2019-01-07.

  • DS-2499

    Closing date: 2019-01-02.

Begin Your Search Here