Previdenza Integrativa_Welfare
07 February 2024

Supplementary or complementary pension and corporate welfare

Supplementary pension: what it is, types and advantages

Supplementary pension or complementary pension is a topic of growing importance in the field of individual financial security; in a context in which public pensions may not be sufficient to guarantee a decent standard of living, supplementary pensions act as an additional pillar to ensure an economically stable future.

In this article, we will explore what supplementary pension provision consists of, its different types and the advantages it can offer.

What is supplementary pension provision

According to the Ministry of Labor and Social Policies , the complementary pension, regulated by the Legislative Decree. 5 December 2005 n. 252 , represents the second pillar of the pension system, the purpose of which is to integrate the mandatory basic or first pillar pension.

Its objective is to help ensure the worker, for the future, an adequate level of pension protection, together with the benefits guaranteed by the basic public system.

Supplementary pension provision is therefore a long-term savings system, aimed at supplementing public pensions .

It is a form of private social security, voluntary and managed by specialized bodies such as pension funds.

The objective is to accumulate capital , which can be used upon retirement, to guarantee additional income.

Supplementary pension provision is a form of savings , based on periodic contributions, which are invested in a targeted manner, to obtain sustainable returns over time.


Supplementary pension: how it works

As explained in the COVIP Guide , the functioning of supplementary pension provision is relatively simple: members pay regular contributions, which are invested in a variety of financial instruments such as shares, bonds and mutual funds.

Furthermore, over the years, the accumulated capital also grows thanks to the returns generated by investments .

Upon retirement , the insured can benefit from the capital accumulated in the form of an annuity or lump sum, offering greater flexibility in managing their financial future.

How many types of supplementary pension schemes are there?

There are different types of supplementary pension plans , suited to individual needs and preferences.

Among the main ones we find:

● supplementary social security with open pension funds,

optionally subscribed by the individual.

● Supplementary pension with closed or negotiated pension funds,

also called trading fund . A supplementary pension fund - so-called "collective" - which can only be accessed by certain categories of workers, defined by the trade union organisation. Unlike open ones, negotiated pension funds are linked to non-profit associations and are established by workers' and employers' representatives, as part of national collective bargaining.

● Supplementary pension with individual plans (PIP)

● Supplementary pension with business plans.

Each type has specific characteristics that make them suitable for different saver profiles.

The choice of type depends on factors such as age, work situation and personal expectations regarding retirement.

Supplementary pension: private funds and category funds compared, pros and cons

In the panorama of supplementary pensions, it is possible to distinguish between private funds and category funds.

● Private funds offer greater customization

● Category funds are linked to the profession or sector they belong to.

The choice between the two depends on individual preferences and specific needs.

Both have advantages and disadvantages, such as investment diversification and regulatory constraints; an informed decision therefore requires a careful evaluation of the pros and cons of each option.

In fact, taking into consideration that:

The art. 38 of the Constitution establishes that every citizen unable to work and without the necessary means to live has the right to maintenance and social assistance (paragraph 1) and that workers have the right to be provided with and ensured adequate means for their living needs in case of accident, illness, disability and old age, involuntary unemployment (paragraph 2).

The same constitutional provision also provides that "the tasks envisaged in this article are carried out by bodies and institutions set up or integrated by the State" (paragraph 4), but that "private assistance is free" (paragraph 5).

The worker can therefore decide whether or not to join the supplementary pension scheme and according to which method.

Therefore, comparing private funds and category funds and analyzing the pros and cons of open or closed funds, we highlight the main differences.

● Open funds are established by banks, insurance companies, asset management companies or SIMs, while closed funds rely on non-profit associations. As a result, open-end funds have much higher costs than category funds!

● Open funds allow individual capitalization, allowing you to allocate TFR, contributions and returns directly to your supplementary pension.

● Open-end funds enjoy preferential taxation in all their phases.

● Open funds may be subject to advances and redemptions, even before the date on which the necessary requirements for retirement are reached.

● Occupational or closed-end funds allow those who join a occupational pension fund to pay, in addition to the severance pay, an own contribution (with a minimum amount equal to 1% of the salary) through the pay slip.

● If the worker decides to start his own contribution to a closed fund, he becomes entitled to an additional contribution paid by the employer.

● For closed-end funds, tax deductions are applied directly to the salary slip. The worker can then benefit from it before the following year's tax return.

Supplementary pension and deductibility of contributions

An important aspect of supplementary pension provision is the tax deductibility of contributions paid.

In many countries, contributions can be deducted or deducted from taxable income , providing a significant tax incentive.

This characteristic obviously makes supplementary pension provision not only an investment for the future, but also a tool for optimizing the personal tax situation.

The advantages of supplementary pension provision

In summary, the advantages of complementary or integrative social security are therefore evidently multiple:

● the guarantee of an additional income upon retirement ,

tax deductibility,

● greater financial security,

● more flexibility in managing accumulated capital,

● one more chance to adapt to the changing needs of life.

Company welfare and supplementary pensions

Company welfare can influence supplementary pensions in different ways, since both have the objective of improving the overall well-being of employees.

Let's see some of the main ways in which corporate welfare can have an impact on supplementary pensions:

corporate contributions.

Some companies offer direct company contributions to employee retirement plans. These contributions can represent a form of incentive or additional bonus, which helps employees accumulate additional financial resources for retirement. Company participation may vary, but significant contributions can increase employees' ability to build more substantial retirement assets over time.

Corporate savings programs

Companies may also decide to offer savings programs or stock purchase plans for employees. Through such programs, employees can invest part of their salary or receive company shares on advantageous terms . These initiatives can indirectly contribute to employees' retirement assets, giving them the opportunity to participate in the company's financial success.

Financial training and consultancy

Corporate welfare programs can include financial training initiatives and money management advice, which includes advice on supplementary pension provision. This can help employees make informed decisions about their retirement investments , understand the benefits of superannuation, and make more informed financial planning for the future.

Long-term insurance and coverage

Some aspects of corporate welfare, such as life insurance or disability coverage, can also be considered as an integral part of retirement planning. These benefits can provide a financial safety net not only during your working life, but also in the event of unexpected events that could affect your financial security in retirement.

In summary , corporate welfare can promote supplementary pension provision by providing direct financial incentives, savings or investment programs, financial training and other benefits that contribute to the financial security of employees both in the present and in the future.

By integrating these two aspects, companies can create a work environment that promotes the financial stability and long-term well-being of their employees.

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