HOOK
In 2017, PIRs — Individual Savings Plans — arrived in Italy with a promise that seemed almost too good to be true: invest in Italian companies, hold for five years, and pay not a cent in tax on capital gains. Zero. No 26% tax. No stamp duty. The dream of every Italian investor.
The financial press presented them as a revolution. Italian asset management companies jumped in enthusiastically. Distribution networks shifted into high gear. Within two years, PIRs had attracted more than 18 billion euros. A spectacular success — at least for those selling the products.
Then reality arrived. Mediocre returns, high costs (which no one advertised), forced concentration in a stock market — the Italian market — that is not exactly the most dynamic on the planet, and a five-year holding requirement that turned enthusiasm into a trap for many investors. In 2019, lawmakers added Alternative PIRs, with even stricter restrictions and a degree of illiquidity that would make anyone who has studied sound financial planning shudder.
But are PIRs really worth investing in 2026? Let us look at the numbers — which are always more honest than slogans.
THE PROBLEM: when the tax advantage becomes an excuse to sell expensive products
The promise of PIRs was simple: keep the investment for at least five years, comply with the portfolio-composition rules, and the State exempts you from tax on capital gains and dividends. In a country where capital gains are taxed at 26%, it seems like a huge bargain. In theory, it would be.
The problem is that theory and practice rarely communicate in finance.
First: the vast majority of PIRs were packaged as actively managed mutual funds, with TERs ranging from 1.5% to 2.5% per year. Anyone who has read our analysis of active funds versus ETFs already knows where this leads: costs compound year after year, systematically eroding returns. The tax exemption saves you 26% on capital gains — but fund costs eat into returns before there is anything to tax.
Second: PIRs require at least 70% to be invested in instruments issued by Italian companies, of which at least 30% must be outside the FTSE MIB (that is, in Italian small and mid caps). In other words, you concentrate your portfolio in a market representing less than 2% of global market capitalisation, with specific overexposure to smaller and more volatile companies. And you do so because of a regulatory requirement, not as a planning choice. Home bias, already a serious problem for the average Italian investor, becomes a regulatory requirement here.
Third: the five-year holding requirement drastically reduces flexibility. Selling before five years means losing the entire tax benefit. It means remaining trapped even when common sense would suggest exiting (and common sense and investing do not always go hand in hand, but legally forcing someone not to sell is another matter).
Fourth: in 2019, Alternative PIRs were introduced, extending the scope to venture capital, private equity and unlisted companies. On paper, a way to support the Italian real economy. In practice, a way to sell illiquid, opaque and expensive instruments to retail investors who, in most cases, do not understand the risks.
THE SUBSTANCE: the numbers the industry prefers not to show you
The rules governing ordinary PIRs
For those unfamiliar with them, here are the basic PIR rules:
| Parameter | Limit |
|---|---|
| Maximum annual investment | 40,000 euros |
| Maximum total investment | 200,000 euros |
| Share invested in Italian instruments | At least 70% |
| Share outside the FTSE MIB | At least 30% of the 70% (= 21% of the total) |
| Minimum holding period | 5 years |
| Concentration in a single issuer | Maximum 10% |
| Tax benefit | Total exemption from tax on capital gains, dividends and stamp duty |
The exemption is genuinely total: no 26% tax and no stamp duty. On an investment of 200,000 euros that produces, say, a 30,000-euro capital gain over five years, the tax saving is 7,800 euros (26% of 30,000). That is not insignificant. But it is not the whole story, as we will see.
Alternative PIRs: the even more restricted version
Alternative PIRs were created in 2019 with the aim of directing savings towards Italy’s unlisted real economy. The main differences compared with ordinary PIRs are:
| Parameter | Ordinary PIR | Alternative PIR |
|---|---|---|
| Maximum annual investment | 40,000 euros | 300,000 euros |
| Maximum total investment | 200,000 euros | 1,500,000 euros |
| Investable universe | Listed Italian shares/bonds | Venture capital, private equity, unlisted SMEs, ELTIFs |
| Liquidity | Limited (5 years) | Very limited (often 7–10 years) |
| Complexity | Medium | High |
| Risk | Concentration in Italy | Concentration + illiquidity + opacity |
More money can be invested and the tax benefit is the same, but the level of complexity and illiquidity makes them suitable — at best — for a very small segment of investors with substantial assets and an extremely long time horizon. For the average saver? A product that should not even be under consideration.
The comparison that matters: PIR versus a diversified ETF
Let us get to the heart of the matter. Is it worth giving up global diversification and paying high costs in exchange for a tax exemption? Let us do the maths.
Five-year simulation: 40,000 euros per year (200,000 euros total)
| Item | PIR (active fund) | Global ETF (VWCE) |
|---|---|---|
| Annual TER | 2.00% | 0.22% |
| Assumed gross return | 6.00% per year | 7.00% per year* |
| Net return after TER | 4.00% per year | 6.78% per year |
| Value after 5 years | ~221,600 euros | ~237,900 euros |
| Gross capital gain | ~21,600 euros | ~37,900 euros |
| Taxes | 0 euros (PIR exemption) | ~9,854 euros (26%) |
| Final net value | ~221,600 euros | ~228,046 euros |
*The gross return of the global ETF is assumed to be higher because a portfolio diversified across the MSCI World has historically performed better than Italian small and mid caps alone, with lower volatility.
Even in a scenario favourable to the PIR (6% gross, which is by no means guaranteed for Italian small caps), the global ETF wins after tax for two reasons: dramatically lower costs and global diversification, which has historically produced more stable returns.
The break-even point: when is a PIR really worthwhile?
The technical question is: at what return does the PIR’s tax saving offset its higher costs?
The calculation is simple (but unforgiving). With a TER of 2.00% versus 0.22%, the PIR has a cost disadvantage of approximately 1.78% per year. Over five years, this translates into an additional overall cost of approximately 9–10% of the capital, taking compounding into account.
The PIR’s tax benefit (the 26% exemption on capital gains) offsets this disadvantage only if the total capital gain exceeds 35–40% over five years. That means an annual return above 6–7%. For Italian small and mid caps, a return of this magnitude is not impossible, but it is far from guaranteed — and it entails volatility that many investors are not prepared to manage.
In other words: a PIR is worthwhile only if it performs very well. If it performs “normally” or poorly, you would have been better off with a low-cost global ETF. And building an investment strategy that works only in the best-case scenario is not a strategy — it is a gamble.
Concentration and home bias: the risk that does not appear in the prospectus
There is also a risk that no information memorandum highlights sufficiently: geographic concentration.
Investing 70% of your portfolio in Italy means making a substantial bet on an economy that represents less than 2% of global GDP and whose stock market has chronically underperformed global markets over the past twenty years.
| Index | Average annual return (2004–2024) |
|---|---|
| MSCI World | ~8.5% |
| FTSE MIB | ~4.2% |
| FTSE Italia Mid Cap | ~5.1% |
| FTSE Italia Small Cap | ~3.8% |
These figures are not a matter of opinion. They represent twenty years of market history. Concentrating 70% of your investment in a market that has returned less than half as much as the global market, and then celebrating because you do not have to pay tax on the capital gain (assuming there is one), is like being happy not to pay the restaurant bill after eating half the meal.
And this brings us back to a fundamental principle of sound financial planning: financial products are a means, not an end. The choice of where to invest starts with your objectives, resources and time horizon — not with the tax advantage of the moment.
Who really benefits?
This is the question that should always be asked when analysing a financial product: who benefits?
The asset management companies that created PIR funds collect a TER of 2–2.5% per year on capital locked in for five years. In other words: commissions guaranteed for five years, on money the client cannot withdraw without losing the tax benefit. It is an extraordinary business model — for the seller.
The distribution network (banks and financial advisers) collects subscription fees and annual retrocessions. The lawmakers achieve their objective of directing savings towards Italian SMEs. The investor? The investor receives a tax benefit that, in most cases, is more than offset by the costs and the Italian market’s underperformance relative to the global market.
As we often say: a tax advantage is not automatically a good investment. Taxation of investments in Italy should certainly be optimised, but it cannot be the main selection criterion.
PRACTICAL APPLICATION: four rules to avoid being taken for a ride
1. Do not invest in a PIR solely for the tax advantage.
The tax benefit is a means, not an end. If the underlying product has high costs, poor diversification and mediocre returns, the 26% exemption does not compensate for them. Assess the product first, then the tax wrapper.
2. Calculate the real cost, not the apparent cost.
A “tax-exempt” PIR with a 2% TER costs far more than a global ETF taxed at 26% with a 0.22% TER. Get out your calculator, run the simulation over five and ten years, and look at the final net value. Numbers do not lie — brochures do.
3. Always compare it with the diversified alternative.
Before subscribing to a PIR, ask yourself: would I achieve a better result with a portfolio of low-cost global ETFs? In the vast majority of cases, the answer is yes. With the added benefit of global diversification and full liquidity.
4. If you already have a PIR, assess the situation rationally.
If you are already invested, the decision is different. If only a few months remain until the five-year term expires, it may make sense to hold on and collect the tax benefit. If years remain and the product is underperforming, assess whether the cost of exiting early (loss of the benefit) is lower than the cost of remaining invested in a mediocre product. Sometimes cutting your losses is the smartest choice — even if it is never the easiest one. To understand how to manage any capital losses when exiting, read our dedicated guide.
CLOSING
A tax advantage that costs more than the advantage itself is not an advantage. It is a marketing trick.
PIRs were an interesting idea on paper: encouraging investment in Italian SMEs through a significant tax benefit. But the execution — expensive active funds, forced concentration and rigid restrictions — turned that good idea into a product that, for most investors, produces inferior results to a simple portfolio of diversified ETFs.
There is nothing wrong with wanting to pay less tax. There is a great deal wrong with paying 2% a year in fees to achieve it. Because compound interest is always at work — even when it is working against you.
FAQ
Are PIRs worth investing in in 2026?
For most investors, no. The tax benefit (exemption from 26% tax on capital gains and dividends) is, in the vast majority of cases, offset — and exceeded — by the higher costs of PIR funds (TER of 1.5–2.5% versus 0.20–0.35% for an ETF) and their lower geographic diversification. A portfolio of low-cost global ETFs almost always produces superior net results, even after tax. Exceptions exist, but they concern investors with highly specific tax situations and substantial assets.
What are Alternative PIRs?
Alternative PIRs are a version introduced in 2019 that extends the tax benefit of ordinary PIRs to investments in venture capital, private equity and unlisted SMEs. The investment limits are higher (up to 300,000 euros per year and 1,500,000 euros in total), but liquidity is drastically lower — capital often remains locked up for 7–10 years. They are complex, opaque instruments suitable only for investors with very substantial assets and a deep understanding of illiquidity risks. For the average saver, they are a product to avoid.
Can I sell a PIR before five years?
Yes, but you lose the entire tax benefit. If you sell before the end of the fifth year, capital gains are taxed normally at 26% and stamp duty is recalculated for all previous years. In substance, you return to the standard tax position as if the PIR had never existed. This is why the five-year restriction is effectively binding: exiting early has a real and measurable cost.
Are there ETFs that qualify as PIRs?
Yes. Since 2021, some PIR-compliant ETFs have existed that meet the composition requirements established by law. They have significantly lower costs than active PIR funds (TER of approximately 0.35–0.50%), which substantially improves the cost–benefit ratio. If you want to use the PIR wrapper, a PIR-compliant ETF is a much more rational choice than an active fund with a 2% TER. But the problem of concentration in the Italian market remains: even with low costs, you are investing 70% in a market worth less than 2% of the global market.
