Supplementary pensions: a pillar that almost nobody uses
Italy’s pension system rests on three pillars.
The first is the public INPS pension, which everyone knows (and everyone complains about).
The third is individual saving and investing — ETFs, bonds and property.
And then there is the second pillar: supplementary pensions. Pension funds.
And this is where things get interesting (in the least flattering sense of the term).
According to COVIP data updated at the end of 2024, there are approximately 10.7 million active positions in supplementary pension schemes in Italy. The number of active workers, employees and self-employed, exceeds 23 million. This means that approximately two out of three workers do not have a pension fund. Not just any pension fund: none at all.
And among those who do have one, a substantial proportion pay the bare minimum, have chosen the wrong investment option or, worse still, have ended up in an insurance-based PIP with extortionate costs, persuaded by the bank’s “adviser” who sold them a product that was excellent for the bank’s commissions (and less excellent for the customer’s pension).
Search Google for “best pension funds in Italy” and you will find rankings, comparisons and star ratings. That is a little like answering “I shop at Coop” when asked about your diet. The point is not which fund. The point is understanding the system and the rules of the game, then building a strategy that makes sense for your specific situation.
Let’s see how it really works. With the numbers.
Too many options, too little guidance
Italy’s pension fund system is not inherently bad. It is mediocre. And mediocrity, unlike catastrophe, does not trigger alarm. It produces inertia.
The first problem is the abundance of supply without a quality filter. There are more than 300 supplementary pension schemes in Italy: 33 occupational funds, 40 open funds, more than 70 insurance-based PIPs, plus legacy funds. Three product families with radically different characteristics, costs that vary by a factor of 10 and identical tax rules. It is as if a supermarket put extra-virgin olive oil from an olive mill and seed oil blended with artificial flavourings on the same shelf, both labelled “olive oil”.
The second problem is the conflict of interest in distribution. Who recommends a pension fund? In most cases, a financial adviser or an insurance agent. And what do they earn? Commissions. Commissions on an insurance-based PIP are three, five or ten times higher than those on an occupational fund. Guess which product is proposed more insistently.
You do not need to be a conspiracy theorist. COVIP’s figures speak for themselves: in recent years, insurance-based PIPs have attracted a growing share of new members, despite systematically being the most expensive and least efficient instrument. Not because they are better. Because they generate more revenue for the people who sell them.
The third problem is choosing the wrong investment option. According to the 2024 COVIP Report, approximately 30% of the assets of occupational funds are allocated to guaranteed or pure bond options. Many of these positions belong to workers in their thirties and forties with 25–35 years until retirement. These people are giving up decades of stock-market growth because they fear a temporary downturn over an ultra-long-term horizon.
It is like training for a marathon but running only on flat ground because hills are tiring. The result is predictable: you reach the finish line, but much later than those who tackled the climbs.
Types, costs, returns and how to choose
Three types of pension fund: the cost map
Not all pension funds are the same. The most important difference — the one that weighs on the final result for decades — is cost.
| Type | ISC at 35 years (indicative) | Accessibility | Pros | Cons |
|---|---|---|---|---|
| Occupational fund (sector-based) | 0.3%–0.6% | Only workers covered by a CCNL that provides for it | Very low costs, employer contribution | Less flexibility, limited investment options |
| Open pension fund (FPA) | 0.8%–1.5% | Open to everyone | Good flexibility, variable quality | Average costs, no employer contribution |
| Insurance-based PIP | 1.5%–3.5% | Open to everyone | Sold everywhere, easy to subscribe to | Often scandalous costs, entry fees, lack of transparency |
The ISC (Synthetic Cost Indicator) is the figure to look at. You can find the figure for every fund on the COVIP website. If your pension fund has an ISC above 2%, there is a very high probability that you are funding the insurance company more than the insurance company is funding your pension.
Tax benefits: why pension funds exist
Pension funds have three structural tax advantages that distinguish them from every other investment instrument available in Italy.
1. Deductibility of contributions
Contributions paid into a pension fund (including employer contributions and TFR) are deductible from taxable income up to €5,164.57 per year. For a worker with gross income between €28,000 and €50,000 (a marginal IRPEF rate of 35%), every €1,000 contributed produces a tax saving of €350. Over 30 years, contributing the maximum deductible amount, the tax saving alone is worth approximately €54,000 — money that comes back to you immediately and that you can reinvest.
2. Preferential taxation of returns
Returns accrued within the pension fund are taxed at 20%, compared with the 26% applied to most financial investments. It is not the 12.5% applied to government securities, but it is still a six-percentage-point advantage compared with a portfolio of equity ETFs under the ordinary tax regime. As we explain in our guide to taxation of investments in Italy, tax efficiency is one of the factors that make up real returns.
3. Preferential taxation on benefits
The final benefit (annuity or lump sum) is taxed at a rate that starts at 15% and falls by 0.30% for each year of participation beyond the fifteenth, down to a minimum of 9% after 35 years of membership. Compare this with the taxation of TFR left with the employer, where the rate is the average IRPEF rate of the last five years (typically 27%–35%), and the difference can be worth tens of thousands of euros.
Returns compared: COVIP data over 10 years
The figures for average compounded annual returns over 10 years (2014–2024, COVIP source) tell a very clear story:
| Fund type | Average compounded annual return over 10 years |
|---|---|
| Occupational funds — equity option | 5.2%–6.5% |
| Occupational funds — balanced option | 3.8%–5.0% |
| Occupational funds — guaranteed option | 1.0%–2.0% |
| Open funds — equity option | 5.0%–7.0% |
| Open funds — balanced option | 3.5%–5.5% |
| Insurance-based PIPs — equity option | 4.0%–5.5% |
| Insurance-based PIPs — guaranteed option | 0.5%–1.5% |
| TFR revaluation with the employer (same period) | ~2.4% |
Two things stand out.
First: the equity option outperformed all the other categories, across every type of fund.
Second: PIPs systematically return less than occupational funds for the same investment option, because higher costs erode gross returns. It is the same dynamic we explain in our guide to how much it costs to invest: costs are the only predictable variable in future returns, and they always work against you.
The guaranteed-option trap
If you are 30, 35 or 40 years old and your pension fund is invested in the guaranteed option, you are harming yourself. Measurably.
Let’s do an exercise. You contribute €200 per month for 30 years. The same amount, the same fund, two different options:
| Guaranteed option (1.5% net return) | Equity option (4.5% net return) | |
|---|---|---|
| Paid in over 30 years | €72,000 | €72,000 |
| Accumulated capital | ~€88,000 | ~€152,000 |
| Difference | +€64,000 |
Sixty-four thousand euros more. On the same contributions. Without doing anything differently, other than choosing the option consistent with your time horizon.
The guaranteed option makes sense for someone who is five to ten years from retirement and wants to protect the capital accumulated. For everyone else, it is a choice driven by fear, not reason. And fear has a precise cost over the long term.
The impact of costs: the variable nobody looks at
Costs compound downward exactly as returns compound upward. The same exercise: €200 per month for 30 years, an identical gross return of 6%, different costs.
| Occupational fund (costs 0.4%) | Average FPA (costs 1.2%) | Insurance-based PIP (costs 2.8%) | |
|---|---|---|---|
| Annual net return | 5.6% | 4.8% | 3.2% |
| Accumulated capital | ~€196,000 | ~€168,000 | ~€122,000 |
| Total cost paid | ~€6,000 | ~€34,000 | ~€80,000 |
The PIP costs you €74,000 more than the occupational fund. On total contributions of €72,000. You are paying more in commissions than you contributed out of your own pocket. If that does not send a shiver down your spine, read it again.
How to choose: the decision tree
The choice is not complicated once you know the rules.
If you are an employee covered by a CCNL:
1. Check whether your contract provides for a sector-based occupational fund (Cometa, Fonte, Fon.te, Laborfonds, Previmoda and many others)
2. If so, join the occupational fund. Contribute at least the minimum required to receive the employer contribution (it is literally free money)
3. If you want to contribute more (up to the deductible amount of €5,164.57), you can add voluntary contributions to the occupational fund or open a second open fund
4. Choose the equity option if you have more than 20 years until retirement
If you are self-employed or do not have an occupational fund available:
1. Open a pension fund with a low ISC (below 1%)
2. Contribute up to the deductible maximum if your overall financial situation allows it
3. Choose the equity option if your time horizon is long
In all cases:
Be wary of insurance-based PIPs. If someone proposes one, ask for its ISC at 35 years and compare it with that of the occupational fund for your sector. The difference will remove any doubt.
5 practical steps to take this week
1. Check whether your CCNL provides for an occupational fund.
Go to the COVIP website (covip.it) and look for the fund associated with your collective agreement. If you do not know, ask your HR department. It is information you need to have.
2. Check whether you are missing out on the employer contribution.
Many CCNLs provide for the employer to pay an additional contribution (typically 1%–1.5% of gross annual salary) if the worker joins the occupational fund. If you have not joined, you are giving up hundreds of euros a year. Every year. Since you started working. Let that sink in.
3. Choose an investment option consistent with your time horizon.
If you have 25+ years until retirement: equity. If you have 15–25 years: balanced. If you have less than 10 years: bonds or guaranteed. If you chose the guaranteed option at age 30 “because it is safer”, change it. It is free and can be done with a form.
4. Check the ISC of your current fund.
If you already have a pension fund, especially if it was “recommended” by a bank or insurance company, check the actual costs. ISC above 2%? Seriously consider transferring to a more efficient fund (this is possible after two years of membership, at no cost).
5. Do not put everything into the pension fund.
The pension fund is a tax-efficient instrument, but it is illiquid and restricted. It is not your financial plan — it is an ingredient in your financial plan. If you do not have an emergency fund, if you are not also investing outside the pension fund, or if you do not have an overall strategy covering all your life goals, the pension fund alone will not save you. As we explain in our guide to how much you really need for retirement, the second pillar is necessary but not sufficient.
The pension fund is not the solution
The pension fund is not the solution. It is a tax-efficient, structurally useful ingredient of the solution.
The solution is a financial plan that integrates all three pension pillars, calibrated to your real life: income, objectives, time horizon and risk tolerance. The instrument comes later. The strategy comes first.
Anyone looking for “the best pension fund” without having a financial plan is looking for the best ingredient without having a recipe. It may work, but it is a gamble. And over the long term, casinos tend to be the only ones that win bets.
Start with the five steps above. Get informed. Run the numbers. And then, if necessary, seek help from someone who does not earn commissions on what they recommend to you.
If you still do not know how to build your retirement plan, start with the basics by following our free course.
FAQ
What is the best pension fund?
There is no “best pension fund” in absolute terms, just as there is no best investment. It depends on who you are, how much you contribute, your time horizon and, above all, how much it costs. In general, if you have access to an occupational fund with an employer contribution, that is almost always the most efficient choice. For self-employed workers, an open fund with a low ISC (below 1%) and a good equity option is the starting point. The “best” fund is the one with the lowest costs, consistent with your time horizon and incorporated into an overall financial plan. Past-return rankings on their own are worth little: nobody knows future returns, whereas you can read future costs today in the ISC document.
Can I have more than one pension fund?
Yes, it is possible to join several supplementary pension schemes at the same time. A common strategy for employees is to contribute their TFR and the minimum required for the employer contribution to the occupational fund, then supplement this with voluntary contributions to an open fund selected for the quality of its management and its investment option. The deductibility limit remains €5,164.57 in total per year, regardless of the number of funds. At retirement, you can request the benefit separately from each fund or transfer everything into one fund.
Can I withdraw money from my pension fund before retirement?
Yes, but subject to specific limits. After eight years of membership, you can request an advance of up to 75% to purchase or renovate a first home (your own or your children’s), up to 75% for significant medical expenses (at any time, without waiting eight years), and up to 30% for any reason. In the event of unemployment lasting more than 48 months, you can redeem the entire position. And if you are less than five years from the statutory retirement age (or 10 years in the event of prolonged unemployment lasting more than 24 months), you can activate RITA, the Temporary Advance Supplementary Annuity, which allows you to receive the capital in instalments with preferential taxation of 15%–9%. It is not a current account, but it is not a prison either.
Pension fund or investing on my own?
It is not an “either-or” choice. They are complementary instruments with different characteristics. A pension fund has unique tax advantages (deductibility, preferential taxation of returns and benefits), but it is illiquid and restricted. Individual investments in ETFs, bonds and shares do not have specific tax advantages but offer total flexibility: you can sell whenever you want, rebalance as you prefer and use the capital for any life goal. Proper financial planning includes both, in proportions that depend on your situation. The pension fund is the tax-efficient ingredient; free investing gives you the flexibility for everything else. Neither is sufficient on its own.
