Italy's Budget Amendments: Pension Changes, TFR, and Authority Reforms

Prime Minister Giorgia Meloni is tightening ranks within her majority after disagreements over pension reforms. Amendments to the budget in the Senate include aid for businesses and measures on severance pay (TFR).

Key Amendments in Italy's Budget

The revised budget amendment includes resources for tax credits related to Transizione 5.0 and Special Economic Zones (Zes), the Housing Plan, and refinancing for the Bridge over the Strait of Messina following audits by the Court of Accounts.

Changes to Severance Pay (TFR)

The amendment revisits the expansion of employers required to pay severance pay (TFR) to the Inps fund. Starting in 2026, this will apply to companies with over 50 employees, transitioning to those with over 60 employees in 2026-27, and then to those with over 40 from 2032.

Pension Reforms

The possibility of early retirement by combining supplementary pension income has been eliminated, projecting savings of up to €130.8 million by 2035.

TFR Payment Obligations Expanded

The amendment expands the scope of entities required to contribute to the Inps fund for TFR disbursement. From January 1, 2026, employers reaching 50 employees after their initial activity year will be included. A transitional arrangement for 2026-2027 limits inclusion to employers with at least 60 employees, while from 2032, the obligation extends to companies with a minimum of 40 employees.

Pension Reforms: No More Combining Supplementary Funds

The new amendment eliminates the possibility of early old-age pension access by cumulating amounts from supplementary pension schemes. This repeals a provision from last year's budget law, yielding annual savings up to €130.8 million by 2035 on pension expenditure. The amendment removes the option, effective from 2025, to include the value of supplementary pension incomes to meet the minimum monthly requirements for old-age pension eligibility with at least 20 years of contributions under the contributory system.

Giancarlo Giorgetti, Minister of Economy, responded to calls for his resignation by stating, “The final result is what counts; we work for the country”.

Automatic Enrollment in Supplementary Pensions

An automatic enrollment mechanism for supplementary pensions will be introduced from July 1, 2026, with a 60-day opt-out period for newly hired private-sector employees. This measure anticipates increased participation in supplementary pensions, gradually affecting new hires. The technical report estimates an average of approximately 100,000 new tacit enrollments per year, leading to reduced contributions to Inps and decreased tax revenues due to benefits from TFR mobilization and supplementary pension contributions.

Here's a summary of the projected tacit enrollments:

Cuts to Early Retirement for Precarious Workers

Further cuts are made to early retirement benefits for precarious workers, increasing by €50 million in 2033 and €100 million from 2034. The original budget already stipulated reductions of €20 million in 2027, €60 million in 2028, and €90 million from 2029 following monitoring activities.

The government modification maintains a reduction of €90 million until 2032, increasing to €140 million in 2033 and €190 million annually from 2034.

Spoil System in Authorities Approved

An amendment allowing for a "spoil system" in Authorities has been approved. A reformulated proposal by the Lega party allows for the “lawful” termination of fixed-term contracts for managerial-level personnel, specifically directors or equivalent positions, during organizational restructuring processes, even within individual services, offices, or divisions.

Details of the "Spoil System" Amendment

Contract terminations may also occur for personnel with “specific characteristics” not found among existing staff for assigned functions. The amendment specifies that the implementation of this measure does not entail administrative or accounting liability.

Minister Giorgetti's Statement

"I think about resigning every morning," said Minister Giorgetti, during the Senate Budget Committee proceedings. "It would be the best thing to do. But since this is my 29th budget law, I know perfectly well how it works, I know these things are natural. There is a Parliament, there are committees, there are government proposals; in the end, I am interested in the final product, not what I present. Naturally, we believe we have done the right things, we think we are working well in the interest of all Italians, and the results are going in this direction. But now it is up to Parliament”.

The financial implications of these changes are complex and will unfold over time.

Summary of Pension and Employment Measures

• TFR Contributions: Expansion of employers required to contribute to Inps.
• Early Retirement: Elimination of combining supplementary pension income for early retirement.
• Automatic Enrollment: Introduction of automatic enrollment in supplementary pensions for new hires.
• Early Retirement Cuts: Increased cuts to early retirement benefits for precarious workers.
• Spoil System: Implementation of a "spoil system" in Authorities.

Revised Timeline for TFR Contributions

The government continues to refine its economic strategies through these budgetary adjustments.