Frequently Asked Questions
Question: What are the structure and substance of the reformed pension system introduced by the Monti government, and approved by parliament under law No. 14 of 27 February, 2012?
Reply: Here is a detailed account explaining the Pension Reform.
The establishment of the contributory method as the criterion for calculating pensions.
As from 1 January, 2012, the contributions paid by all workers maturing after 31 December, 2011 will be calculated on the basis of the number of contributions. The contributory system is used to calculate the pension based on all the contributions actually paid throughout the entire period of insurance. It is distinct from the remuneration calculation system which is based on the average remuneration received in the final years of working life. All employees who would have received a pension calculated exclusively on the basis of their remuneration will therefore have a pension paid on a pro rata basis using both calculation systems.
By pro rata basis is meant that until 31 December, 2011, the pension entitlement maturing under the remuneration system, that is to say, based on the average earnings of the final years prior to retirement, remains unchanged. That system applies to all employees who had paid 18 years of contributions at 31 December, 1995. In their case, the years following 2012 will be calculated using the contributory system method. For all the others, the contributory system is already in force. For some workers, part of their working life will therefore be calculated using one system, with the later part of their working life based on the other. This creates a hybrid system. The pension will be calculated as the sum of both periods calculated using their different methods.
The pension paid to women and men will gradually converge.
The retirement pension in the case of women enrolled with the General Statutory Insurance scheme (AGO) and schemes in lieu of it, will become payable as from 1 January, 2012 when they reach 62 years of age, and by 2018, 66 years of age. That will give men and women equal pension entitlement.
As from January 2012 self-employed women, and women enrolled with the "Separate Pension” will retire at 63 and six months, and at 66 as from 2018.
Male employees and self-employed males in both the private and the public sector will be entitled to a pension at the age of 66 as from, 2012.
All men and women must have paid contributions into the pension system for at least 20 years.
Women employed in the public sector and registered with Exclusive Pension Funds may receive their retirement pension at the age of 66 as from 1 January, 2012.
Pension age flexibility
Beginning on 1 January, 2012 the length of service-based pension will be abolished. It will be replaced by the early retirement pension. No longer will 40 years of service be sufficient, and for 2012, the requirement will be 41 years and one month for women and 42 years and one month for men.
In addition to being adjusted to life expectancy (three months in 2013) the eligibility requirement is increased by one month for 2013 and a further month for 2014.
The quota mechanism has been abolished together with the 12-month pension payment deferral time
Those who meet the eligibility requirements for a pension after 1 January, 2012 will be entitled to the retirement pension and the early retirement pension from the first day of the month following the month they meet the eligibility requirements.
Employees must cease any kind of employment with third parties on the date the pension becomes due. The self-employed are not required to stop working, however.
Disincentives have been introduced to dissuade applications for early retirement before the age of 62. For each year of early retirement below the age of 62 a one percentage point reduction will be applied to the portion of the pension due based on the years of contributions paid accruing prior to 1 January, 2012; this reduction is raised to 2 percentage points for each subsequent year of early retirement prior to two years (that is to say, prior to the age of 60).
The reduction does not apply to those who reach the required number of contributions paid by 31 December, 2017 if the years of contributions derived exclusively from actual work, including periods of maternity leave, or leave for military service, or for accident, illness and redundancy layoff periods.
The in addition to raising the pensionable age, a certain flexibility has been introduced for retirement from work. Between the age of 62 to 70, the pensionable age will be flexible, applying coefficients for converting the capital accumulated using the contributory method calculated up to the age of 70, without affecting the statutory restrictions on employment in the public sector.
Exceptionally, , the following is provided for persons employed by the private sector and paying contributions into the AGO, and equivalent pension funds:
1. Male and female workers with 36 years of contributions at 31 December, 2012 who have completed their 60th birthday, or with 35 years of contributions and have reached their 61st birthday, may retire with a pension on their 64th birthday;
2. Female workers with at least 20 years of contributions at 31 December, 2012 and have reached their 60th birthday at that date, may retire with a pension on their 64th birthday.
The "pensions reform", raising the pensionable age and abolishing length of service-based pensions, does not apply to the following:
- Employees meeting the eligibility requirements by December 31 under current legislation on the aforementioned date of 31 December, 2011;
- Female employees and self-employed women with at least 35 years of contributions, and who have reached their 57th birthday in the case of employed women, and their 58th birthday for self-employed women, who, for an experimental period until 31 December, 2015, may retire with a length of service-based pension if they opt to take their pension based on the contributory system, provided that their entitlement accrues before 31 December, 2015.
The inflation-adjusted increments will not be applied for 2012 and 2013 in the case of pensions exceeding €1,402 in 2011.
(Source: INPS)
Published on 16 March, 2012
